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15 Sep 14 21:16

Liability claims trends have been lower than expected in recent years, with weak economic growth since the financial crisis a key factor shaping what has been a benign claims environment. Things will change. Not only will a number of technological,social and regulatory changes increase claims severity, accelerating economic activity will push claims growth in the major markets also.

Many macro variables that have an impact on liability claims severity were affected by the recession starting in 2008 and subsequent weak global recovery. High unemployment lowers wage inflation, which also reduces growth in healthcare expenditures. In the US, healthcare expenditures were also affected by the implementation of the Affordable Care Act that limited cost increases. Further, governments were under ongoing fiscal strain, which may have contributed to health care expenditures rising more slowly. Liability settlements on compensation for lost income were probably lower due to weak employment prospects and low wage increases.

The anticipated increase in economic growth will push up these core macro factors, creating upward pressure on liability claims payments. With rising claims, demand for commercial liability covers will pick up also. The biggest changes in healthcare expenses are expected in the US, Canada and the UK. Wage gains will be the largest in the UK, Italy and the US. Germany's economy has been doing well and is not expected to have stronger wage growth in 2020 than in 2012, but we estimate that healthcare expense growth will rise by a percentage point.

Nominal claims growth in the period 2014-20 is expected to average 2-3% in France, 3-4% in Italy, 4-6%in the UK, 4-7% Germany, 5-6% in the US, and 6-7% in Canada. There are multiple drivers for the different ranges. The US, Canada and the UK have the highest GDP growth forecasts for the coming years, and France and Italy the lowest. So it follows that claims growth in France and Italy is expected to be less than in the other markets.

That said, the UK and France have historically shown low correlation of claims growth to GDP growth,while Canada and Germany have historically demonstrated high correlation of claims growth to wage and CPI inflation. There's no guarantee the historical relationship patterns of macro drivers and claims growth will repeat. Persistent structural changes that sustain the unusual situation that has prevailed since 2008 (ie, in which claims growth has been below nominal GDP growth) for the foreseeable future could lead to a"lower-for-longer" scenario. The changes could be, for instance, in tort reform, the healthcare system, and/or the insurance coverage. It's not our base line assumption, but it's possible.

Find out more about other trends relating to casualty claims as well as the implications for insurers by reading the latest sigma No 4/2014: Liability claims trends: emerging risks and rebounding economic drivers.

sigma | Swiss Re - Leading Global Reinsurer

www.swissre.com

sigma insurance reports offer In-depth analysis of economic trends and strategic issues in insurance, reinsurance and financial services, covering life and non-life business.


Category: Other

Location: Zurich, Switzerland


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