How claims inflation is affecting Definity’s auto, property lines

Claims inflation in Definity Financial Corporation’s auto and property lines appears to be stable, Definity president and CEO Rowan Saunders said during a recent virtual fireside chat with RBC Capital Markets.

While inflation is at elevated levels, it’s starting to flatten out, Saunders said during the fireside chat last week. Moderator Geoffrey Kwan, managing director of global research with RBC Capital Markets, asked Saunders about how claims inflation has changed on the auto line over the past few months, the components of claims cost, and whether the situation is getting better, worse or stabilizing.

“We have not seen an acceleration, we have not seen a deceleration,” Saunders said. “For our portfolio and our closed claim files, it’s been quite stable Q3 over Q2. We’re not seeing anything unusual and we’re looking very carefully at inflation and severity.

“In the accident benefits or bodily injuries [area], it’s kind of as we expect — low single digits,” Saunders said. “We look at a number of factors there. One factor might be the percentage of claimants that have legal representation. Those are some of the indicators that we pay attention to, and it’s looking very stable.”

Theft costs actually decreased quarter-over-quarter, and there is some positive news on non-driveables, Saunders said, referring to severely damaged vehicles that may not be total losses.

But on the auto physical damage side, labour rates and parts inflation are picking up. “That also creates longer delays to fix your cars, and that extends our rental car days.”

Kwan asked for Saunders’ thoughts about claims inflation going forward in terms of parts and labour. “If supply chain issues get resolved or if we do go into a recession… do you expect the cost of those parts to potentially decline or do you just it just stays here?” Kwan asked.

“There’s a ways to go before we really have this fully effective, efficient supply chain, and there’s still some backlogs,” Saunders said. “From a parts perspective, our view would be this [inflation] is going to be elevated for some time. If [inflation] does come down, we’ll respond to it at the time, but it’s not our assumption. There is some short-term pressure in the auto line, and we’ve got a winter coming up.”

Kwan also asked about claims inflation on the property side.

“I’d say property’s actually been more stable through this year,” Saunders said, but noted that it is a bit of a mixed bag.

“I think what we see is mid- to upper-single digits inflation or severity in our property portfolio,” he said. “The moving parts – things like lumber, which were really elevated in the last couple of years – have come down quite a bit but that’s been offset with things like shingles, which are up, and labour rates which are up.”

Definity’s property line underlying attritional loss ratio on a year-to-date basis and through last year has been getting better, even with an inflationary environment, Saunders said. “We’re not too concerned about the inflationary impacts on the property portfolio.”

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