Inflation Returns – Temporary or Extended Stay?

Among the many cascading events that COVID-19 presented to the American people – the infusion of trillions of dollars of federal government COVID-relief spending into the economy, the ongoing supply chain disruptions, and the continued labor market struggles – have all played a large role in contributing to the high inflationary environment currently impacting the U.S. economy. The return of long-dormant inflation ends what many have called the “free money” era in which inflation and interest rates hovered around zero. Consumers are suddenly feeling the pinch at the grocery stores, gas pumps, and in other consumer goods.

The insurance industry now finds itself in a morass of soaring automobile and building material costs, labor shortages, and supply chain struggles, as well as dealing with several outsized and out-of-season extreme weather events, all while inflation outpaces premium increases.

As we approach 2023 with the tangible and intangible impacts of inflation’s unwelcome return continuing to be felt, the question is whether this inflationary era is only temporary, or will it prove to be long lasting? If the latter, how will the insurance industry be affected and what can be done to minimize the impact?

This is part one of our three-part series – in collaboration with Gen Re – examining inflation and its impact on insurers.