Experts at McKinsey & Company estimate that inflation pushed loss costs for property/casualty insurers up roughly $30 billion last year, with nearly three-quarters of that figure coming through personal lines.
Focusing on the amount an insurer must pay to cover claims, its loss costs, the authors estimated that rising prices drove an almost $22 billion increase in personal lines loss costs in 2021, over and above historical loss trends. For three commercial lines—workers comp, commercial multiple peril and commercial auto—the 2021 impact of cost inflation was roughly $8 billion, they estimated. While the dollar impacts for the longer-tail commercial lines are smaller than for personal lines, a chart showing the percentage impact on each line reveals a 16 percent impact for workers comp.
Neither set of figures—the dollar or the percentage impacts on loss costs—gauge the further impacts of inflation in 2022. the impacts will be much bigger.
Breaking Down Inflation’s $30B Impact on Insurers Line By Line
Explaining the high impact of inflation on personal auto for both years, they note jumps in prices of motor vehicle parts and equipment between June 2021 and June 2022, and supply chain disruptions impacting the physical damage coverage part.
To manage such costs effectively, insurers will need to focus on increasing claims productivity and automation and improving or repairing managed-care network utilization and negotiated pricing while also balancing cycle time improvements with claims accuracy,” they write.
Now may be a good time to accelerate innovative loss prevention capabilities through in-home Internet of Things applications, automotive telematics (such as vehicle tracking) and workplace monitoring,” they advise in the section devoted to chief claims officer responses.