65: Inflationary pressures and catastrophe claims. What to expect - Xactware & PCS interview

For our latest Artemis Live interview we wanted to dive into a hot topic, inflationary pressures, material prices and labour costs and how this could play into catastrophe claims for the insurance, reinsurance and insurance-linked securities (ILS) industry in 2021.  Inflation is big news currently, with some economists expecting a sustained period of price increases and inflationary pressures around the world.  There are several factors causing this, some specific to different locations and regions of the world.  But for the insurance, reinsurance and insurance-linked securities (ILS) market, materials, labour and other costs have in some cases risen significantly, which has ramifications for catastrophe events and possible loss amplification to claims.  To help me dive deeper into this issue, I spoke with two senior Verisk Analytics executives with years of experience on the claims-side of the market, Mike Fulton, President of Xactware and Tom Johansmeyer, Head of PCS.  Fulton explained the current situation, "We're in new territory. This has not happened in the past, even in my thirty years in the business. "We're seeing inflation in several areas, some of that is significant and we certainly expect additional inflationary growth in both material and labour for the near-term."  Johansmeyer explained that this is a particularly hot-topic for the industry at this time, "It's interesting, because we've been getting calls about this for almost a year now."  He advised market participants ensure they have the access to data that's required to help in understanding how inflationary pressures could play into catastrophe claims.  "It's important to look at PCS alongside Xactware, because we'll (PCS) tell you what the cat is doing, we'll help you understand what your portfolio is doing. But as you dig into that, it's the granularity that you see with Xactware, which is literally as close to the risk as you can get, that provides those sorts of insights."  This interview features a discussion of what these inflationary pressures mean and how reinsurance and ILS market participants may deal with the effects of it, including hedging, retrocession and other portfolio management opportunities.

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