It is likely to persist for at least the next 12 months and is having a significant impact on our industry. Already, we are seeing a much higher inflationary figure than what was expected -almost three times our worst-case scenario – and this is significantly affecting our claims cost base, particularly in our motor portfolio.
Following the disruptive Covid-19 lockdowns of the past two years, global supply chains have struggled to normalise, leading to a spike in the price of almost all goods, says Soul Abraham, chief executive for retail at Old Mutual Insure.
Trends impacting inflation, and claims costs
Demand is increasing rapidly around the world after two years of Covid-19 restrictions. The sustained increase in inflation is caused by the resumption of global economic activity after long lockdowns have sent demand, and subsequently prices of goods, higher.
Supply chain disruptions are being driven by port congestion, skyrocketing freight costs, and the widely publicised semi-conductor chip shortages. China’s strategy of hard lockdown when the coronavirus is detected will also influence the supply chain. Shanghai – a major manufacturing centre globally – entered a nine-day lockdown at the time of writing.
“We are also experiencing double-digit inflation numbers in the average cost of motor vehicle claims, mostly owing to the global semiconductor and microchip shortages, which have negatively impacted the availability of new cars
This sustained hyperinflation has seen a dramatic increase in the price of many commodities such as oil, wheat, other crops, and even computer chips, leading to inflation rates last seen several decades ago.