Inflation looking ever more entrenched, could outpace P&C pricing power: Moody’s

Inflation could run sufficiently high for sufficiently long to surpass any further pricing power of EMEA property and casualty (P&C) insurers,  Moody's has warned in a research note.

"Commercial P&C prices will continue to rise in 2022, but at a slower pace," Moody's analysts wrote. "This increases the risk that price rises may fall behind claims growth if inflation persists."

And inflation will continue to rise in 2022 after jumping to life as the pandemic gave way to catch-up economic growth, with ensuant supply chain problems.

The EMEA P&C insurance business is dominated by retail coverage, where pricing power can be constrained.

"Intense competition, weak growth in mature segments, and regulatory scrutiny prevents many EMEA retail P&C insurers from raising prices to offset higher claims," Moody's authors wrote.

The upshot: a potential reversal of the gains in retail P&C underwriting profit achieved since 2019.

Persistently high inflation can snap back at the industry beyond claims:  insurance spend could be trimmed if households feel a decline in real purchasing power or asset valuations could be destabilized if interest rates are hiked too quickly.

The profit pinch will push P&C insurers further and further to insurtech solutions to clamp down on costs while hopefully improving underwriting.

Russia's invasion of Ukraine can only increase the challenges. The invasion has "exacerbated the risk of prolonged inflation" with downside risks for economic growth.

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