Price competition is back, just as claims inflation tames, CFOs warn

Price competition made a strong comeback amongst issues worrying insurance industry CFOs while the inflation fears of a year ago have quietly faded away, helping strike some balance on earnings impacts, the latest insurance sector CFO survey from Moody's has indicated.

‘Pricing and the competitive environment’ hit the ranking of top-three worries for 43% of the panel, including taking the second highest vote count for top worry outright. That put price competition to the #3 spot on Moody's ranking of CFO worries, up heavily from the #7 slot one year ago when only 14% of CFO's gave the concern a top three ranking, mostly on third-place nominations. 

“In the property and casualty (P&C) sector, competition will make it harder for insurers to push through sufficient price increases to offset rising claims and reinsurance costs,” analysts wrote. 

‘Persistently high inflation’ had been the prior year survey's #1 CFO worry, but slipped to #4 for the 2024 ranking as the percentage of CFOs giving it a top-three ranking fell from 73 to 39%. 

But reduced is not gone. Over 80% of CFOs said they still expect claims costs to continue rising in 2024. Around 26% anticipate an increase in claims frequencies and about two thirds expect continued claims inflation. 

Those two shifting sets of worries may find balance by the time they meet on the industry's profit and loss accounts, survey data suggested. 

2023’s hopes that pricing might exceed claims inflation - or concerns that it needed to exceed - have faded for the 2024 reading, but so have select worries that some pricing gains might fall short of the mark. 

“Most CFOs remain confident in their ability to absorb claims inflation in 2024,” authors wrote. “While responses vary by business line, on average over two thirds expect price increases in line with claims inflation.” 

For the 2024 survey, the percentage of CFOs hoping price could exceed claims inflation in commercial motor and property dropped from 38% to 22% while those expecting prices to just hold the line rose from 48% to 70%. 

In general liability, CFO pricing expectations vis-a-vis claims inflation have consolidated notably. The percentage worried about a shortfall in pricing fell from 27% to 14%, expanding the ranks of those hoping pricing can hold the line from 55 to 72%. 

Even greater consolidation of expectations can be seen in specialty, where 90% of CFO's now expect pricing to track claims, 10% hope to squeeze out more and no one worries about an undershoot. 

That leaves retail motor and property as the last segment still leveraging the price side: some 35% of CFOs expect price gains to exceed claims inflation, up from 29% in the prior year survey. 

By the time operating profits are measured on the P&L, that balance in pricing and cost lines has an overwhelming percentage of CFOs expecting some modest growth in profits, but nothing of the high hopes of a year ago. 

No one in the 2024 survey forecast operating profit growth in excess of 10% versus 23% of CFOs who said so one year ago. But the largest portion, some 64%, ventures a growth forecast in the upper single digits. Only 12% see threat of a decline. 

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