Property/casualty, comp to benefit from high interest rates: Expert

While rising interest rates may be bad for Wall Street, insurers will likely benefit from current market conditions, according to an expert in economics.

“When interest rates go down, it is not good for us,” said Robert Hartwig, clinical associate professor and director, Risk and Uncertainty Management Center, at the University of South Carolina’s Darla Moore School of Business, in a presentation on the economics of workers compensation and the effect of the COVID pandemic at the National Council on Compensation Insurance’s Annual Insights Symposium Wednesday. “The best investment opportunities for carriers are coming up right now.”

Meanwhile, the pandemic “financial rollercoaster” will likely continue, yet factors affecting comp — rising wages, sluggish workforce and medical inflation — is no doomsday, he said, comparing the recent figures with that of the 1970s and ’80s, when inflation and interest rates were at record highs, and in double digits in some cases.

And long-tail lines such as comp, which rely in part on investment income for financial strength, are among the businesses that could see a boost in financial strength — which could help offset claim severity, he said.

And while inflation — announced as 7.3% for April – could affect the comp industry in terms of labor market conditions, medical inflation will likely not, he said, adding that medical inflation tended to outpace economic inflation in the years prior to COVID, but that relationship has flipped post-pandemic, with medical inflation at 2.9%.

NCCI experts took a deeper dive into medical inflation in comp at a later session, where they said there are “concerns” but no alarms. NCCI’s most recent data shows drug costs are declining, yet physician costs are up slightly and facility costs are rising.

 

“While general inflation is up, workers compensation medical trends have been moderate and the forecast remains relatively moderate in the near future,” said Sean Cooper, practice leader and senior actuary for NCCI.