A new study by Conning Research and Consulting, Hartford, Conn., may cause property/casualty insurers to cringe with caution. The report holds that the relatively minor inflationary impact of the last 15 years is about to change, and looking forward to the next few years, P&C carriers will likely suffer from inflation and its related market volatility.
“As we look ahead, there appears to be increased prospects for inflation in components that could have significant impacts on insurer operating results and economic value, both good and bad,” said Stephan Christiansen, director of research at Conning.
The Conning Research study, “Inflation in Property-Casualty Insurance: How Bad Can It Be?” reviews the history of inflation and its components in the United States, its impact on the property/casualty industry and potential mitigation strategies for negative impacts. The study also analyzes the likelihood of inflation in the 2010-2012 Conning industry forecast period.
The study looks at historical industry results, and models the personal auto and workers’ compensation lines of business in order to better analyze inflation impacts from both steady and volatile increases, said Christiansen.
“In some early stage inflation scenarios, operating results actually improve, but longer term we see dramatic value destruction from hyper-competitive pricing and loss reserve development,” he said. “Insurers have a number of tools at their disposal to mitigate inflation risk, but must be prepared to respond quickly, particularly in the case of a volatile inflation event.”
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