Triple-I Weblog | Excessive Climate’s Seasonal Severity Impacts Charges, No matter Inflation, Worth Gouging


The damage from the winter storm that swept the southern United States earlier this year continues to be a big issue for property and casualty insurers, even as the country struggles with forest fires and anticipates another above-average hurricane season.

“Uri alone wouldn’t necessarily affect the premiums,” says Dr. Michel Léonard, CBE, Triple I Vice President and Senior Economist. “What matters is the overall severity of extreme weather events during a calendar year or a certain hazardous season.”

Dr. Léonard reports that weather experts’ current expectations of higher than average hurricane and forest fire seasons – in addition to Uri – are likely to help raise property insurance tariffs “before and regardless of inflation” in 2021.

“Traditionally, actuarial models keep natural catastrophe claims and inflation separate and only combine them in the last stage of rate estimation,” says Léonard.

Three trends for 2021, he says, would push insurance tariffs up significantly for 2022:

  • The combined natural catastrophe losses in 2021 from winter storms, hurricanes and forest fires are expected to be above the annual average;
  • Headline inflation in the US is currently forecast at 4% to 6% in 2021, the highest in a decade; and
  • Industry-specific inflation above national average for construction materials and labor due to supply chain disruptions from COVID-19.

“There are some situations where extreme weather events directly increase replacement costs, which in turn affects the impact,” says Léonard. “But ‘price gouging’ – as it happened after Uri – should not be confused with inflation. It is temporary, while inflation almost always persists. “