The U.S. insurance industry continues to grapple with the challenges of persistently high inflation, according to experts at an S&P Global Market Intelligence webinar held on April 30. Despite a slight moderation in inflationary pressures from previous levels, they remain elevated compared to pre-pandemic years.
The Federal Reserve's attempts to address inflation have not achieved their intended targets. Moreover, the property and casualty industry is still experiencing a hard market, even though rates may have peaked.
"The outlook for the domestic insurance industry remains complicated as stubbornly high inflation weighs on the sector," said Tim Zawacki, principal research analyst for S&P Global Market Intelligence. He noted that while the inflation rate has decreased from its peak, it is still significantly higher than before the COVID-19 pandemic.
Zawacki highlighted the impact of inflation on costs within the property and casualty industry. "You can't separate from the inflationary pressures that the [property and casualty] industry has been seeing on loss costs, and that's labor costs and the amount that skilled labor commands in the marketplace," he said.
Workers in body shops or those rebuilding homes continue to demand much higher compensation than before the pandemic. This has put additional pressure on insurers' loss costs.
"We did see a slight deterioration in the combined ratio for commercialized insurers, and even though it was very strong it was still about a point weaker than the prior year," said Iten. "That does suggest that maybe rate increases are no longer in excess of loss costs trend."
On a more positive note, Carmi Margalit, managing director and life insurance sector lead at S&P Global Ratings, stated that stability characterizes the life insurance sector. Ratings are unlikely to fluctuate significantly over the next 18 to 24 months.
"The few companies that we do have either on a positive or negative outlook on are related to company specific issues," Margalit said. "So their transactions are an idiosyncratic issue with that company and it's not emblematic of any kind of sector trend."