Inflation might not lead to higher claims amounts in Canada

With overall consumer inflation near 40-year highs, can sharply rising claims costs and social inflation be far behind?

It’s too soon to tell, an Aon expert tells Canadian Underwriter.

Speculation that consumer price inflation might spark social inflation for casualty claims has so far not materialized, according to a June inflation report from Aon.

“Companies with significant cross-border exposure will be affected by social inflation to a degree,” said Jason Machtinger, Aon’s senior vice president of analytics and actuarial.

But, AON’s report added, structural aspects of Canada’s legal environment – including a lack of so-called nuclear verdicts and lower pain-and-suffering sums – is keeping awards relatively stable for the time being.

Canadian case law also limits non-economic damages and most cases are decided by judges rather than juries. Both factors can temper the severity of awards.

“The ability to achieve a high deep-pockets settlement is much lower than in the U.S.,” Machtinger told CU. “While social inflation in Canada does not have a significant direct impact on severity, there may be other items to consider such as potential erosion of verbal thresholds for catastrophic automobile claims.

“Given the reporting and settlement lags on liability claims [including court backlogs] it remains too early to measure the true impact.”

And while market pricing for new and used cars, as well as parts, drove up costs for insurers to fix or deal with totalled vehicles, AON’s report said auto liability claims haven’t yet seen the same jumps.

StatsCan found wage indexation rose higher than the Consumer Price Index at the start of the COVID-19 pandemic, but it’s increased more slowly since early 2021, said Machtinger.

“Changes in wages will generally lag wider economic conditions as salary/wage reviews are not constant for many employers but are done periodically,” he said. “So, measurement of lost wages in settlements are likely behind general inflation.”

Consumer prices for medical care also are rising more slowly than overall CPI.

“Increases in the cost of medical care is behind general inflation,” Machtinger told CU. “Additionally, there has been a backlog in the courts during COVID that will take time to work through, thus delaying settlements.”

Feature image by iStock.com/bymuratdeniz