Inflation: what pricing challenges for 2023?

21/10/2022

All data issued from the French data market analysis of our experts as an illustration of inflation & pricing on P&C.

After two years of relatively favourable results in motor and home insurance, directly linked to an exceptional health situation, the year 2022 marks the return of a strong inflationary drift in all sectors. This drift has a direct impact on all types of cover, thus sustaining an increase in motor and home insurance costs.

What are the consequences in motor and home insurance?

Consequences in motor insurance

In motor insurance, the price of spare parts continues to rise inexorably, reaching new heights, despite the reform to liberalise the spare parts market. This reform is not very well adapted and is still too recent to hope to curb this galloping inflation. This unfavourable context is accompanied by a rapid transformation of the vehicle fleet with a significant impact. On the one hand, there has been an explosion in the number of SUVs in recent years (x2 in 4 years) and on the other hand, more and more hybrid/electric vehicles (41.5% of new vehicles). The latter require a more qualified workforce and higher raw material costs (x2).

The current inflationary context is also having an impact on the damage items of the bodily injury cover. Indeed, the three main loss items, which are third party assistance, loss of future professional earnings and future health expenses, represent 67% of the total compensation and are directly impacted by the evolution of costs. Between 2005 and 2019, for example, the active hourly cost has increased by 40% and the passive hourly cost has almost doubled.

Consequences in home insurance

Housing is also affected by rising construction costs and a transition from new construction to smart and green building. In addition, there is a shortage of raw materials and labour, which has continued and intensified since the start of the Russo-Ukrainian conflict. These tensions are causing prices to soar and delivery times to increase. The average increase in the cost of materials is estimated at +18% over the first quarter of 2022.

Moreover, the year 2022 was largely impacted by climatic events, including a very significant drought which had an impact on home insurance, as well as numerous hail storms which caused an explosion in the number of motor insurance claims.

Climate change is leading to an increase in the number of natural disasters and extreme climatic events, resulting in a rise in the number of claims. The latter should continue to deteriorate in the future with an increase in the frequency and intensity of climatic hazards. In home insurance, the average annual cost of natural disasters over the last five years is three times higher than in the 1980s.

What expectations for 2023?

On the basis of these observations, and in order to maintain a certain balance, we anticipate an increase in premiums of around 4 to 5% for motor insurance and 5 to 5.5% (including climatic drift) for home insurance, which the profession can hardly avoid in order to maintain its commitments and its quality of service to policyholders.

The strong inflationary drift, together with the climatic drift, are thus pushing insurers to change their tariff structure. These upward drifts must be taken into account in the tariff evolutions of 2023.

This analysis has been directed by :

Guillaume Rosolek

Partner, Head of Pricing & Analytics P&C

About Addactis® Pricing

Our non-life insurance pricing software addactis® Pricing has been designed, among other things, to respond to the management of tariff revalorizations and to easily take inflation into account by injecting it directly into the tariff equation.

The solution also integrates a behavioural modelling section that allows the analysis and modelling of customer behaviour in the face of annual price increases and the application of a differentiated strategy by segment in order to optimise retention and margins. This tool is all the more important in the current context of significant changes in premiums.

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