Claims inflation could outrun US home & property pricing power: Moody’s

Inflation is set to punish US homeowner and commercial property insurers in 2022 with loss ratios that will leave rates well behind to play catch-up throughout the year or beyond, the  Moody's rating agency has said.

"Higher costs for construction materials and labor have caused elevated loss severity,"  Moody's analysts wrote.

Moody's roughly calculates 20% claims inflation over just the first four months of 2022 on hypothetical blend of the recorded 26.7% increase in materials costs, the 5.5% labor inflation rate and 2% on charges for construction delays.

Natural catastrophe events multiplied by that kind of replacement and repair cost growth could spell trouble.

The  Moody's baseline scenario is for 2.5 points to go into combined ratios in 2022 as loss cost growth at 10% outstrips the 7% rate growth called for in  Moody's latest P&C insurer survey.

"Insurers are raising coverage levels and rates, but generally not sufficiently to cover higher construction costs," analysts wrote.

Consumers can only be asked to swallow so much at once, the agency suspects. The increase in coverage levels to actual replacements costs could be spread "o er several years rather than all at once in order to temper the impact on customers." Insurers might already be behind the curve,  Moody's hints, including on delay to renewal timing.

The enduring good news in rating agency views:  "insurers remain well capitalized" with "ample capital to withstand potential underwriting losses."

America's top ten homeowner insurers suffered a technical loss on those policies in 2021 as combined ratios on the line came in at 103.4%. Commercial did better, with a 97.3% combined ratio for the top ten in those lines.

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