LineSlip Market Insights: What’s Really Driving Premium Increases?
In recent years, a ‘triple threat’ has significantly affected both insurers and policyholders, leading to a substantial increase in claim costs and premium rates. This trio of challenges comprises escalating weather-related events, hyperinflation, and social inflation, each contributing to the surge in claim costs. As a result, insurance companies have been compelled to raise their premium rates. Meanwhile, customers and brokers grapple with ‘premium rate increase fatigue’. These combined factors underscore the need for organizations to turn to data-driven risk management solutions that pinpoint risk factors and help reduce their overall risk cost.
Grasping the effects of weather events, hyperinflation, and social inflation is crucial to understanding the elements contributing to the rise in claim costs and premium rates. The pattern of extreme weather events has changed, with unpredictable wildfires, hailstorms, floods, and other natural hazards occurring more frequently and causing more severe losses. Concurrently, hyperinflation’s effect on the price of goods has necessitated insurance providers to hike rates to cover the increased claim and repair costs. According to insurers, social inflation, a concept that refers to societal and behavioral trends that potentially extend the liability of parties allegedly causing harm to their insurers, exacerbates the first two issues.
While insurers have solid empirical data to substantiate their assertion that weather-related events and hyperinflation escalate claim costs, paradoxically, there is scant empirical research on whether social inflation influences claims. According to this Rand report the rise in trial awards and insurance claim severity, net of economic inflation, may suggest social inflation, but the evidence is not definitive. The report also cautions that the disparity between the growth rates in trial awards or claim severity and economic inflation might not be attributable to social inflation and could be due to factors outside the civil justice system.
Although it remains uncertain whether social inflation warrants the increase in premiums, a risk manager needs deeper insights into their insurance data to know their total risk cost and the factors driving premiums to circumvent this three-headed monster. LineSlip provides the risk manager with data and risk analytics to navigate these threats in the current insurance landscape. Let us show you how LineSlip addresses your or your client's current insurance data and analytic challenges.
