Insurance inflation continues to exceed U.S. inflation
Analysis of the annual changes in the WTW Claim Cost index, as shown in Figure 1, shows that the composite insurance inflation rate outpaces the general inflation rate in 2024 and 2025. The 2025 cost increases are preliminary, as many of the cost indices contributing to the WTW Claim Cost Index haven't 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 continues to manifest into insurance costs.
| Coverage | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Auto, bodily injury | 3.45% | 3.28% | 4.06% | 3.19% | 3.75% | 2.35% | 4.09% | 3.06% | 4.77% | 5.26% | 5.06% | 4.20% |
| Auto, property damage | 2.60% | 2.35% | 2.77% | 2.08% | 3.05% | 2.82% | 3.40% | 4.06% | 6.24% | 6.11% | 4.80% | 4.44% |
| Auto, physical damage | 1.93% | 1.63% | 1.88% | 1.10% | 2.29% | 3.28% | 2.76% | 4.83% | 6.95% | 7.02% | 4.77% | 5.39% |
| Auto, subtotal | 3.06% | 2.36% | 3.33% | 2.01% | 3.13% | 2.66% | 3.54% | 3.63% | 4.30% | 5.87% | 5.11% | 5.62% |
| Workers compensation | 3.58% | 2.98% | 3.80% | 3.44% | 2.49% | 2.11% | 4.48% | 3.72% | 5.60% | 4.92% | 4.27% | 4.04% |
| Other, bodily injury | 2.17% | 5.59% | 2.90% | 4.50% | 1.08% | 4.55% | 3.34% | 4.22% | 4.32% | 5.07% | 5.84% | 4.14% |
| Other, property damage | 3.37% | -0.04% | 2.82% | 1.46% | 5.31% | 1.07% | 3.36% | 7.15% | 6.31% | 3.86% | 2.00% | 2.80% |
| Burglary and theft | 4.33% | -0.39% | 0.01% | 7.19% | 4.94% | -3.14% | 3.01% | 5.80% | 5.75% | 5.56% | 3.28% | 3.09% |
| Boiler and machinery | 1.75% | -0.39% | -9.16% | 5.48% | 3.80% | 9.25% | 3.97% | -0.20% | 4.22% | 4.88% | 8.80% | 12.06% |
| Fire | 2.45% | 3.36% | 3.15% | 1.70% | -0.54% | 0.40% | 4.29% | 10.06% | 6.77% | 3.06% | 6.12% | 2.04% |
| Allied lines | 6.21% | -1.14% | 6.13% | 0.33% | -0.90% | 1.88% | 4.70% | 10.53% | 7.43% | 2.18% | 4.41% | 3.03% |
| Homeowners | 4.71% | 4.22% | 3.62% | 3.00% | 2.29% | 3.17% | 2.08% | 2.68% | 8.89% | 9.56% | 5.78% | 4.84% |
| Commercial multiple peril | 3.19% | 2.24% | 3.20% | 1.41% | 1.76% | -0.10% | 3.87% | 7.82% | 5.93% | 2.75% | 2.40% | 4.42% |
| Inland marine | 2.79% | 3.62% | 1.60% | 1.72% | 1.97% | 5.30% | 3.57% | 5.62% | 5.92% | 5.76% | 3.32% | 3.10% |
| Composite | 4.04% | 2.47% | 3.52% | 2.21% | 1.97% | 2.38% | 3.86% | 3.18% | 5.92% | 6.03% | 4.42% | 4.76% |
| CPI, all items | 1.62% | 0.12% | 1.26% | 2.13% | 2.44% | 1.81% | 1.23% | 4.70% | 8.00% | 4.12% | 2.95% | 2.89% |
Please note that we have expanded our medical index to include consumer prices related to medical equipment, dental services, nursing homes, home health and other services. This improvement in our model impacted a few of the historical indices slightly.
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.
On Figure 1, we note the elevated index for Boiler & Machinery in 2024 and 2025, which we believe to be largely driven by the increased cost of materials due to tariffs.
For the 10-year period ending in 2024, 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 hospital services are almost double the overall inflation rate in the last year (2023/2024).
| Cost for | 2014 | 2023 | 2024 |
Change 2023 / 2024 |
Change 2014 / 2024 |
|---|---|---|---|---|---|
| CPI, All Items | 236.7 | 304.7 | 313.7 | 2.95% | 32.51% |
| CPI, Physicians Services | 359.1 | 412.6 | 417.9 | 1.30% | 16.38% |
| CPI, Hospital Services | 738.4 | 1,038.7 | 1,098.8 | 5.78% | 48.81% |
| CPI, Medicinal Drugs | 234.5 | 276.5 | 282.5 | 2.18% | 20.48% |
| Legal Costs | 345.6 | 460.0 | 469.5 | 2.06% | 35.84% |
| CPI, Auto Body Work | 278.0 | 411.2 | 417.2 | 1.45% | 50.09% |
The average annual trends for several major coverages (from the five-year periods of 2014 to 2019 and 2019 to 2024, as well as the three-year period of 2021 to 2024) are shown in Figure 3. As the figure shows, several periods show insurance coverage increases above the CPI. From 2014 to 2019 and 2019 to 2024, all eight coverages are above the CPI. Five of eight coverages are above the CPI for the 2021 to 2024 period. The average CPI for the 2019 to 2024 and 2021 to 2024 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 8.07%, while the lowest growth rate was for commercial multiperil, at 3.68%.
| Coverage |
5-Year Increase 2014 - 2019 |
5-Year Increase 2019 - 2024 |
3-Year Increase 2021 - 2024 |
1-Year Increase 2023 - 2024 |
|---|---|---|---|---|
| CPI, All Items | 1.55% | 4.18% | 5.00% | 2.95% |
| Auto Bodily Injury | 3.33% | 4.45% | 5.03% | 5.06% |
| Auto Property Damage | 2.61% | 4.92% | 5.71% | 4.80% |
| Auto Physical Damage | 2.03% | 5.26% | 6.24% | 4.77% |
| Workers Comp. | 2.96% | 4.60% | 4.93% | 4.27% |
| Other Bodily Injury | 3.71% | 4.55% | 5.07% | 5.84% |
| Other Property Damage | 2.11% | 4.52% | 4.04% | 2.00% |
| Homeowners | 3.26% | 5.75% | 8.07% | 5.78% |
| Comm. Multiperil | 1.70% | 4.53% | 3.68% | 2.40% |
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 4.1 compares composite inflation indices since 2014 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 CPI line until 2021. In Figure 4.2, we compare the same composite indices, but with 2019 as the base level. Liability composite inflation is closely following the fitted CPI trend line, while property and multi-peril outpace general inflation at a similar rate.
WTW hopes you found the general information provided here 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, WTW offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
