Triple-I Blog | JIF 2022: Integrated Rate Takes Center Stage

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Photo credit: Dan Pollard

Max Dorfman, Research Writer, Triple-I

Insurers are expected to post an underwriting loss in 2022, following four years of modest underwriting profits, according to a panel at Triple-I’s Joint Industry Forum.

The panel was introduced by Paul Lavelle, President of US National Accounts for Zurich North America, who noted that the insurance landscape has changed dramatically over the past year.

“The biggest concerns for the global economy are accelerating inflation, the credit crunch and the cost of living,” Lavelle said in his opening remarks. “That’s why I think as an industry we have to put this together and deal with all the variables.”

In the group Dr. Michel Leonard, Triple-I Chief Economist and Data Scientist; Dale Porbilio, Triple-I Chief Insurance Officer; and Jason Kurtz, principal and consulting actuary for actuarial consultant Milliman Inc.

“Overall inflation has increased and replacement costs have decreased,” Leonard said in his initial comments. “Growth has been challenging because of Federal Reserve policy, which has stalled the economy. Most of the growth is disappearing in homeownership, on the commercial real estate side and on the auto side.

Porfilio said the increase in loss trends in the insurance industry reflects underwriting losses, with a combined ratio of approximately 105 in 2022. The combined ratio represents the difference between claims and expenses and premiums paid by the insurers. A composite ratio below 100 indicates an underwriting profit, and a ratio above 100 indicates a loss.

The 2022 underwriting loss comes after a small underwriting gain of 99% from 2018 to 2021. However, underwriting results are expected to improve as the industry progresses.

“The results are not the same as previous years,” Porbilio said. “The core underwriting fundamentals are concerned. However, after a poor result in 2022, we expect some improvement in 2023 and 2024.

However, commercial lines have been relatively successful.

“Overall, business taxes do relatively better than personal taxes,” Kurtz said. “That was the case in 2021, and we expect that to be the case in 2022 and through our forecast period of 2024.”

That includes workers’ compensation, which, according to Kurtz, closes eight years of underwriting profits.

In the personal vehicle line, gains since 2020 have turned into the biggest losses in two decades.

“The personal car is very sensitive to supply and demand,” Leonard said. “In the last 24 months, there’s been a historic uptick in prices, especially on the used auto side. It’s all about supply and demand. Those prices have gone up 30 to 40 percent a year. But recently, prices have come down a bit.

“The industry lived with higher profits in 2020 due to fewer drivers,” Porbilio added. “Sixteen billion returned to customers that year.”

However, due to impaired driving and careless driving, the loss rate has increased.

According to Porfilio, the combined ratio is 101 in 2021 and 108 in 2022. However, loss trends are expected to return to normal in 2023 and 2024.

Interest rates have also affected homeowners’ taxes.

“Federal policies are punishing growth,” Leonard said.

“Loss pressure and Hurricane Ian have created challenging results,” Porbilio added.

However, the hard market is projected to grow by 10 percent in 2022, partly due to exposure contracts and rate hikes.

The combined ratio is expected to be around 115 in 2022, drop to approximately 106 in 2023, and 104 percent in 2024.

On the commercial auto side, panelists forecast underwriting gains with a combined ratio of 99 in 2021, but a four-point loss in 2022. This is expected to improve with a forecast ratio of 102 and 101 in 2023. 2024.

Among commercial properties, markets face shortages of steel, glass and copper, according to Leonard, with labor challenges contributing to low-mid-double-digit percentage time increases for some tasks.

“One of the most important factors in this is labor. It’s very unlikely that labor will go back to where it was,” Leonard said. “We estimate that repair, reconstruction and construction will take 30 percent more time and five percent in terms of cost.”

However, the net combined ratio for commercial property markets is projected to be approximately 99.1 in 2022, a small underwriting gain despite losses from Hurricane Ian. In 2023, the combined ratio is expected to be approximately 94 and 92 in 2024.

“We expect further rate increases and additional premium growth,” Kurtz added.

Indeed, insurers are constantly adapting to these new challenges. Although 2022 is predicted to result in smaller losses, the industry continues to evolve.

As Lavelle said in his introduction, “Insurance companies can no longer assess risk, charge premiums, and pay losses. We are looked to to bring the answers.


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