The Return of Inflation:
Implications for the
Economy & Insurance
Over the past several years, businesses have faced a seemingly never‑ending
series of challenges including a global pandemic and resulting economic
shutdown, record natural catastrophes and a hardening insurance market.
By mid‑2021, the worst appeared to be over; vaccination rates were on
the rise, the economy was expanding and insurance rate increases were
Any optimism, however, may have been premature as inflation quickly rose to levels not seen in over 40 years. This
threatens the economy overall and will have a profound effect on insurance. Ultimately, rising inflation could be a
more significant event for the insurance industry than the pandemic.
It is important to note that most industry actuaries, underwriters, claim professionals and risk management
professionals have never experienced severe inflation. Memories of its destructive power have faded and will have
to be revisited. Insurers and insurance buyers will need to adjust their approaches to address those potential
impacts on everything from pricing to limits adequacy.
“What we learn from
history is that people don’t
learn from history.”
The Return of Inflation
Why inflation matters
In any economy, prices for individual goods and services are in a constant
state of change. Inflation measures the overall impact of price changes
for a broad, diversified set of products and services. A prolonged increase
reduces the purchasing power of the currency and ultimately leads to a
slowdown in economic growth.
The U.S. represents the world’s single largest economy, with a GDP of $23
trillion in 2021 — accounting for more than one-fifth of global output.
Since the U.S. dollar is the most widely used currency in global trade and
transactions, even small changes in U.S. monetary policy and investor
sentiment can play a major role in driving global financing conditions.
As the United States’ central bank, the Federal Res