A Letter From the President – January 2022
Inflation is on everyone’s mind nowadays. Inflation has a lot of businesses worried. Warren Buffett compares inflation to a tapeworm on the host.
“Inflation acts as a gigantic corporate tapeworm. That tapeworm preemptively consumes its requisite daily diet of investment dollars regardless of the health of the host organism… The tapeworm of inflation simply cleans the plate.” ~Warren Buffett
Inflation creates higher cost of claims – materials – medical bills – elevated court case verdicts (social inflation), etc. Below is a chart showing the anticipated effects on P&C insurance rates – this chart shows large ranges. We ask you to consult with our Risk Advisors as we understand the marketplace trends you have control of versus those you don’t. We advise you on the trends, so you are aware, yet we consult on what you do have control of to be on the lower end of cost of risk, regardless of what economic market we are in. Our proprietary Risk Profile process allows us to lower your cost of risk relative to your competitors gaining you real marketplace advantages. Using Warren Buffett’s analogy – we make the host better and stronger so the tapeworm can’t do it’s damage.
Going into 2022, economic experts predicted rising inflation will continue to be a pressing concern. While it’s currently making the most significant impact on the property and auto insurance markets, such prolonged inflation will likely begin to affect additional segments over time, such as the workers’ compensation and liability insurance. This means insurance carriers will face challenges as it pertains to maintaining insurance pricing to keep up with more volatile loss trends. To prevent unanticipated loss costs and increased loss ratios due to rising inflation concerns, carriers may need to increase premium expenses and make other coverage adjustments. Nevertheless, it’s important to note the insurance industry as a whole is better positioned to incur losses to its reserves when compared to previous periods of prolonged inflation in U.S. history (i.e., the 1980s).
Premium forecasts are expected to rise; its magnitude, of course, is dependent on a multitude of factors. The forecasts by nature should be viewed as general information and are subject to change
If you would like a more comprehensive look at trends influencing the commercial insurance space and how these trends may impact policyholders, click here. Our Risk Advisors can help you navigate this variable business cost and work with you on other risk mitigation strategies to be sure you are well positioned in this economic environment to come out the other end stronger.