Inflation puts sustained pressure on casualty claims

Inflation will likely outpace the unwinding of casualty claims over the next decade, creating a material risk of a long-term shift that puts sustained pressure on casualty results, said Brian Gray, Swiss Re’s chief underwriting officer.
Gray offered a global insurance market outlook at the 2009 Swiss Re Breakfast in Toronto.
“For years insurers have benefited from the fact that year after year, as casualty claims unwind, inflation tends to be a little bit less than when the claim started,” Gray said. “That’s not likely over the next decade.”
Nearly all of the values that are used as a basis to determine property damage are the function of values that increase with inflation — including wage and the cost of repairs or replacements for property damage, Gray explained in an interview following the Breakfast.
“It’s not so much an immediate problem this year, but the challenge is that next year the business we’re writing now gets settled in the claims process about five or six years from now, and it would be settled according to whatever the value of the claim is then,” he continued.
It’s a challenge because insurers underwriting the policies now don’t know what claims inflation will look like in the future or what tort environment will exist as governments get more lenient in terms of settlements, given the economic situation, he said.
To protect themselves, insurers can invest in assets that are defensive against inflation, Gray suggested. They can also defend themselves through price, he added.