Tuesday, October 7, 2014
While low interest rates are likely to continue to present a challenge well into 2015, a stronger economy presents the property/casualty insurance industry’s best opportunity for growth, according to I.I.I. president Dr. Robert Hartwig.
Dr. Hartwig shared his thoughts on the industry’s growth outlook in his Commentary on 2014 First Half Results.
There are two principal drivers of premium growth in the P/C insurance industry he noted: exposure growth and rate activity.
Exposure growth—basically an increase in the number and/or value of insurable interests (such as property and liability risks)—is being fueled primarily by economic growth and development.
Although the nation’s real (inflation-adjusted) GDP in the first quarter of 2014 actually declined at an annual rate of -2.1 percent, economic growth snapped back in the second quarter, as real GDP surged by 4.6 percent.
Dr. Hartwig says:
Growth in key areas of the economy such as new vehicle sales, multi-unit residential construction, and consistent employment and payroll growth are clearly benefitting the P/C insurance industry. For the remainder of 2014 and into 2015, the consensus forecasts call for real GDP growth to hold steady at about 3 percent.”
The other important determinant in industry growth is rate activity. Rates tend to be driven by trends in claims costs, conditions in the reinsurance market, marketing and distribution costs, and investments in technology, among other factors.
Although it’s challenging to foresee the interplay of all of these and macroeconomic factors, Dr. Hartwig says it is certainly possible that overall industry growth in net written premiums could keep pace with overall economic growth in 2014.
In the first half of 2014 the industry’s net written premium growth actually decelerated slightly to 4.0 percent in the first half of 2014, compared to 4.3 percent in the first half of 2013.
But, as Dr. Hartwig concludes:
Workers compensation is likely to remain the fastest growing major P/C line of insurance in 2014 if economic growth and hiring behave as projected.