Claims inflation trends are likely to remain an important feature in 2024 but insurance pricing fails to adequately reflect this according to Bloomberg Intelligence’s (BI) European P&C insurance full-year outlook.

Analysts noted the lag that exists between insurers raising rates and those dropping through to the bottom line. Aside from cyber insurance, BI says there are few obvious areas where companies can boost volume and, as a consequence, the outlook believes insurers will not be able to increase rates enough to fully offset rising expenses.

 Bloomberg Intelligence said: “The cost ratio of most insurers remains too high. It is crimping returns and is not being helped by inflation and claims inflation. This makes cutting costs difficult, and this is key when top lines stall due to weak economies.”

“Upwards pressure on claims paid and costs driven by inflation means it is imperative that insurers continue to push premium rates up in 2024. Margins are likely to remain under pressure as claims inflation always lingers longer than anyone expects.”

Claims inflation can impact on reserving, capital, risk modelling, pricing and business planning for both existing and future exposures.

 At H1 2023, analysis indicated that average premiums rose by 9 percent, but the European building materials index was up 16 percent. “This implies claims costs are rising faster than premiums and while this index is slowing, input costs will likely remain an issue,” said the outlook.

The outlook concluded that the rollout of IFRS 17 accounting – which began “in earnest” with Q2 results – has the potential to sharpen investor focus on book value and the return on it. There is also concern that uncertainty, caused by the new accounting rules, is not likely to help sentiment in 2024.

Increased claims, inflation and higher reinsurance costs will likely drive further insurance rate increases in 2024, according to an American report.

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