Analysis of the annual changes in the WTW Claim Cost Index, as illustrated in Figure 1, shows that the composite insurance inflation rate outpaces the general inflation rate in 2023, but the composite insurance inflation rate has lowered from the prior preliminary estimates. The 2024 cost increases are preliminary, as many of the cost indices contributing to the WTW Claim Cost Index have not been finalized, but early indications show that the composite insurance inflation rate continues to exceed the general inflation rate. We expect continued increases in the cost of claims as persistent inflation in product prices continue to manifest into insurance costs.
A P&C insurer’s claim settlements are directly affected by economic factors such as trends in the cost to replace damaged property, the cost of repair parts, the cost of medical services and drugs, salaries and wages. In economic terms, claim costs for loss and loss adjustment expenses are the cost of production for the insurer. An insurer’s major claim costs include physician services and other medical expenses; hospital care and rehabilitation; lost time and wages; automobiles, including repairs and parts; building materials and construction labor; and personal effects. The components for loss adjustment expenses are those incurred by insurance companies in settling claims (e.g., legal fees, and other legal and court costs).
The WTW Claim Cost Index is calculated from a variety of sources (e.g., the Consumer Price Index [CPI] and the Producer Price Index [PPI]) that reflect insurance costs. The Index can be used as an indicator of the rate of change in claim severity. For example, insurance companies purchase auto mechanic services for auto physical damage coverage. As the hourly wage of auto mechanics increases, the cost for auto physical damage insurance coverage increases.
For the 10-year period ending in 2023, the individual indices for hospital services, legal costs, and auto body work have exceeded the CPI for all items, as shown in Figure 2. For this same 10-year period, the physicians' services and medicinal drugs indices trail the CPI for all items. Legal costs are a significant portion of casualty coverages. Please note that legal costs are almost double the overall inflation rate in the last year (2022/2023).
The average annual trends for several major coverages (from the five-year periods of 2013 to 2018 and 2018 to 2023, as well as the three-year period of 2020 to 2023) are shown in Figure 3. As the figure illustrates, several periods show insurance coverage increases above the CPI. From 2013 to 2018, all eight coverages are above the CPI. Four of eight coverages are larger than the CPI for the 2018 to 2023 period, and two of eight coverages are above the CPI in the 2020 to 2023 period. The average CPI for these two periods are elevated due to the 2022 general inflation rate of 8.00%. In the latest three-year period, the largest increase was for homeowners, averaging 6.81%, while the lowest growth rate was for auto bodily injury, at 3.33%.
The WTW Claim Cost Index does not measure changes in the frequency of claims or “social” inflation, which reflects changes in attitudes toward litigation, changes in jury attitudes, new theories of liability or the push toward larger settlements driven by large punitive damage awards. Figure 4 compares composite inflation indices since 2013 to the Consumer Price Index. Property, multi-peril and liability composite inflation is higher than the CPI over the last ten years, with property closely following the fitted line until 2021.
| Coverage | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024* |
|---|---|---|---|---|---|---|---|---|---|
| Auto, bodily injury | 5.30% | 3.21% | 3.69% | 2.26% | 4.12% | 3.13% | 4.66% | 2.23% | 4.21% |
| Auto, property damage | 3.33% | 2.09% | 3.02% | 2.78% | 3.42% | 4.09% | 6.18% | 4.70% | 5.52% |
| Auto, physical damage | 1.88% | 1.10% | 2.29% | 3.28% | 2.76% | 4.83% | 6.95% | 7.02% | 6.22% |
| Auto, subtotal | 4.07% | 2.02% | 3.10% | 2.60% | 3.56% | 3.67% | 4.21% | 4.12% | 5.33% |
| Workers' compensation | 4.69% | 3.45% | 2.44% | 2.04% | 4.50% | 3.80% | 5.48% | 2.83% | 5.12% |
| Other, bodily injury | 3.98% | 4.55% | 0.98% | 4.52% | 3.35% | 4.31% | 4.20% | 2.32% | 4.40% |
| Other, property damage | 3.14% | 1.49% | 5.27% | 1.07% | 3.36% | 7.17% | 6.26% | 3.06% | 4.64% |
| Burglary and theft | 0.01% | 7.19% | 4.94% | -3.14% | 3.01% | 5.80% | 5.75% | 5.56% | 3.77% |
| Boiler and machinery | -9.16% | 5.48% | 3.80% | 9.25% | 3.97% | -0.20% | 4.22% | 4.88% | 4.20% |
| Fire | 3.15% | 1.70% | -0.54% | 0.40% | 4.29% | 10.06% | 6.77% | 3.06% | 7.85% |
| Allied lines | 6.13% | 0.33% | -0.90% | 1.88% | 4.70% | 10.53% | 7.43% | 2.18% | 6.24% |
| Homeowners | 3.85% | 3.00% | 2.29% | 3.15% | 2.08% | 2.71% | 8.86% | 8.98% | 8.08% |
| Commercial multiple peril | 3.41% | 1.42% | 1.75% | -0.11% | 3.87% | 7.83% | 5.91% | 2.19% | 3.80% |
| Inland marine | 1.60% | 1.72% | 1.97% | 5.30% | 3.57% | 5.62% | 5.92% | 5.76% | 4.12% |
| Composite | 4.11% | 2.22% | 1.93% | 2.34% | 3.88% | 3.20% | 5.85% | 4.69% | 5.36% |
| CPI, all items | 1.26% | 2.13% | 2.44% | 1.81% | 1.23% | 4.70% | 8.00% | 4.12% | 3.35% |
| Cost for: | 2013 | 2022 | 2023 | Change 2022 / 2023 |
Change 2013 / 2023 |
|---|---|---|---|---|---|
| CPI, All Items | 233.0 | 292.7 | 304.7 | 4.12% | 30.80% |
| CPI, Physicians Services | 354.2 | 411.9 | 412.6 | 0.16% | 16.50% |
| CPI, Hospital Services | 703.2 | 998.2 | 1,038.7 | 4.06% | 47.72% |
| CPI, Medicinal Drugs | 109.1 | 127.1 | 132.1 | 3.92% | 21.01% |
| Legal Costs | 339.2 | 428.1 | 460.0 | 7.46% | 35.62% |
| CPI, Auto Body Work | 271.0 | 385.9 | 411.2 | 6.56% | 51.76% |
| Coverage | 5-Year Increase 2013 - 2018 |
5-Year Increase 2018 - 2023 |
3-Year Increase 2020 - 2023 |
1-Year Increase 2022 - 2023 |
|---|---|---|---|---|
| CPI, All Items | 1.51% | 3.94% | 5.59% | 4.12% |
| Auto Bodily Injury | 3.80% | 3.27% | 3.33% | 2.23% |
| Auto Property Damage | 2.68% | 4.23% | 4.99% | 4.70% |
| Auto Physical Damage | 1.77% | 4.96% | 6.26% | 7.02% |
| Workers’ Compensation | 3.43% | 3.73% | 4.03% | 2.83% |
| Other Bodily Injury | 3.45% | 3.74% | 3.61% | 2.32% |
| Other Property Damage | 2.63% | 4.16% | 5.48% | 3.06% |
| Homeowners | 3.61% | 5.11% | 6.81% | 8.98% |
| Comm. Multiperil | 2.40% | 3.90% | 5.28% | 2.19% |
Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.
