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Inflation and the threat of a recession are a reality not to be ignored. The combined effects of the Ukraine conflict and post-COVID supply chain disruption resulted in inflation rates not seen in 40 years. The consumer price index (CPI)—a key measure of U.S. inflation—peaked in June 2022 at 9 percent.

Executive Summary

How can we be more resilient when it comes to reserving and pricing? Are we separating assumptions that our past allowed us to combine? Those are just two of the questions plaguing insurers in a time of inflation, note WTW consultants Timothy Pratt and Justin Milam. Here, they offer two methods for accounting for inflationary trends in loss reserves triangles and explain the subtle impacts that inflation has on future business to be priced.

While inflation has subsequently decreased, it remains significantly above historic averages. Monthly inflation rates have recently reduced but not to the levels pre-2020. This could signify a marked change in the inflationary pressures we encounter in the future.

Many economists believe a recession is imminent. Some believe if it does happen, it will be short-lived and moderate. Others believe it will be long and deep. Will insurers be ready?

It’s not just the CPI that is causing headaches. Changing demographics and weather patterns have U.S. property and casualty insurers struggling to maintain profitability.

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