With overall consumer inflation at a 39-year high, can sharply rising claims costs and social inflation be far behind?
It might be too soon to tell, an Aon expert tells Canadian Underwriter.
Although pricing for new and used cars, as well as parts, drove up costs for insurers to fix or deal with totalled vehicles, auto liability claims haven’t seen the same jumps, noted a June inflation report from Aon.
StatsCan found wage indexation rose higher than the Consumer Price Index at the start of the COVID-19 pandemic, but it’s increased more slowly since the beginning of 2021, said Jason Machtinger, Aon’s senior vice president of analytics and actuarial.
“Changes in wages will generally lag wider economic conditions as salary/wage reviews are not constant for many employers but are done periodically,” he said. “So, measurement of lost wages in settlements are likely behind general inflation.”
Consumer prices for medical care also are rising more slowly than overall CPI.
“Increases in the cost of medical care is behind general inflation,” Machtinger told CU. “Additionally, there has been a backlog in the courts during COVID that will take time to work through, thus delaying settlements.”
What’s more, speculation that consumer price inflation might spark social inflation for casualty claims has so far not materialized, according to AON’s report.
While AON said the issue is a concern for U.S. claims, it noted structural aspects of Canada’s legal environment – including a lack of so-called nuclear verdicts and lower pain-and-suffering sums – is keeping awards relatively stable for the time being.
Machtinger said “companies with significant cross-border exposure will be affected by social inflation to a degree,” but added Canadian case law limits non-economic damages and that most cases are decided by judges rather than juries. Both differences can temper the severity of awards.
“The ability to achieve a high deep-pockets settlement is much lower than in the U.S.,” Machtinger told CU. “While social inflation in Canada does not have a significant direct impact on severity, there may be other items to consider such as potential erosion of verbal thresholds for catastrophic automobile claims.
“Given the reporting and settlement lags on liability claims [including court backlogs] it remains too early to measure the true impact.”
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