The Insurance Information Institute’s (Triple-I) latest Insurance Economics Outlook reveals that the US property & casualty (P&C) insurance industry is now growing at a rate surpassing the nation’s gross domestic product (GDP), with expectations it will further accelerate if the Federal Reserve implements monetary rate cuts.
“We’ve been forecasting that P&C underwriting growth would catch up on overall GDP and it has,” Michel Léonard, chief economist and data scientist at Triple-I said.
“Triple-I forecasts P&C underlying growth to increase to 3.4% in 2024, 1.2% above the Fed’s GDP forecast of 2.2%,” Léonard said. “It will likely take at least another year for this economic rising tide to lift the P&C industry’s overall growth and performance.”
Looking ahead, Léonard also indicated that the P&C sector is expected to continue its strong performance relative to the overall economy.
“Triple-I expects P&C underlying growth to continue outperforming overall GDP growth into 2025 and 2026,” he explained.
According to the report, based on the Fed’s GDP forecasts, insurance growth is expected to exceed US economic growth by an average of 2.0% annually over the next three years.
Despite the growth, Léonard also cautioned that various economic stress scenarios could have an impact.
“Different economic stress scenarios may reduce or widen the spread between P&C underlying growth and overall GDP growth, or even reverse the overall trend of P&C underlying growth outperforming overall GDP growth,” he said.
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Léonard identified the Federal Reserve’s potential shift in monetary policy and renewed geopolitical risks, including global supply chain disruptions, as the primary risks to sustained growth.
Triple-I’s forecast for GDP growth in 2024 stands at 2.6%, slightly more optimistic than the Federal Reserve’s projection of 2.2%. This optimism, Léonard noted, stems from Triple-I’s models, which place less emphasis on the negative impacts of interest rate increases on GDP growth and unemployment rates compared to the Fed’s models.
Léonard suggested that a potential interest rate cut by the Fed within the year could significantly bolster sectors crucial to insurance underwriting, such as housing and auto sales, providing a further boost to the P&C industry’s growth trajectory.
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