Uncertainty stemming from the debt ceiling controversy is likely to exacerbate replacement cost inflation that has been putting upward pressure on property/casualty insurers’ loss rates — and ultimately, consumer premium rates, according to Triple-I’s chief economist.
“Whether we go to five, 10 or 20 days or not — or if we don’t have a lockdown at all — that points to an imbalance in the market in terms of government operations,” said Dr. Michelle Leonard, president of Triple-I. Economist and data scientist interviewing Triple-I CEO Sean Keveligan. “It leads to higher interest rates…which fuels inflation and reduces growth.”
As material and labor costs rise, home and vehicle repairs become more expensive, driving up losses for insurers and putting pressure on premium rates. For an industry already struggling with rising replacement costs and trying to grow with the rest of the economy, Leonard said, [debt limit debate] It adds to those challenges.”
Keveligan, whose background includes working at the US Treasury Department during the George W. Bush administration, has described high replacement costs as the “new normal”.
“You have to look at replacement costs over three years, and they’re high,” Kevelighan said. “Our personal homeowner replacement costs are up 55 percent. Our personal car replacement costs are up 45 percent. And if inflation goes negative, we’re in an even worse place.”
Leonard noted that the federal government has shut down 21 times since 1976, with the shutdown lasting 35 days or less than a few hours. In the interview above, he explains how this usually played out and what kinds of scenarios might lie ahead.
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