Supply chain issues driving inflation since early in the COVID-19 pandemic remain a concern, although emerging signs suggest some trends impacting global goods pricing are starting to abate.
“We’ve seen some easing of the supply chain challenges,” said Colette Taylor, chief operating officer of Sovereign Insurance. “You’re not seeing so many boats [in harbours] waiting to come in.”
That may be good news, given many economists predict some level of global economic downturn either this year or in 2023, although they disagree about the severity of the coming dip.
Inflation can heighten the impacts of a recession, and in the worst cases can lead to stagflation, which combines economic stagnation with rising consumer prices.
In July, Canada’s consumer price index eased somewhat to to 7.6%, following June’s reports of a 40-year high for inflation. Even energy prices have also begun to ease, following record costs at the gasoline pumps earlier this summer.
But, said Taylor, the world is far from out of the woods on energy prices.
“We’re all at the whims of Russia,” she said. “They do know in Europe that they’re in for a potentially very chilly winter this year.”
Climate-change issues also could amplify pricing issues, with unusual weather systems creating problems for grain harvests at a time when global food supplies are threatened by the war in Ukraine.
For insurers, Taylor said, the issue is that their pricing always lags claims costs – particularly for commercial insurance.
“Personal insurance pricing is much more agile. You’ve got the rating systems and critical mass of data to be able to change rating on an almost daily basis if desired,” she said. “With commercial portfolios, you’re typically only going through that exercise in any great length of detail annually.
“So, you can potentially have a 12-month lag on how you’re thinking about pricing.”
Depending on the size and complexity of a portfolio, and the actuarial resources available, the kinds of short-term fluctuations the economy’s experiencing now can be harder to react to – which is why these issues tend to be reviewed on a longer-term basis.
“You can potentially blend some of that volatility that you’ve seen on a month-to-month basis, but it can also mean that improvement continues over a period of time,” said Taylor. “The broker [or] client is not necessarily going to see that as quickly as they see it in some of their other consumer-based goods.”
Feature photo courtesy of iStock.com/Ladanifer