What Insureds Must Know When Facing Economic Inflation Uncertainty
White Paper Summary
The U.S. inflation rate hit a record 40-year high in June 2022, at 9.1%. Economists posit this rise is a direct result of the COVID-19 pandemic and the ongoing events stemming from the last two years, including supply chain disruption, war in Ukraine and the labor shortage caused by The Great Resignation.
It makes sense: As the pandemic hit and businesses closed shop, consumers put a pause on buying goods and services. Manufacturing rates slowed. Then, as restrictions lifted, consumers searched out those goods and services, yet businesses could not keep up with demand as they hadn’t been manufacturing during shutdowns. Concurrently, the lack of labor has less operators to help fulfill orders, and the supply chain has felt the pinch.
Added to that, war has inflated gasoline prices worldwide, which continue to fluctuate as the crisis continues, further driving up costs for goods and services being shipped around the world.
Adding more fuel to the inflation fire are monetary policies that kept interest rates very low for years, which economists predicted would eventually cause inflation.
This impact from inflation has caused a certain level of uncertainty for operations.
“The topics around social inflation have been around for a while, but with more economic inflation, we find clients are trying to figure out how to navigate that world,” said Matt O’Malley, U.S. Country Manager, at AXA XL.
“Many haven’t had to deal with this economic inflation issue during their career and others haven’t seen it for decades. Now, there’s the uncertainty around negotiated prices. When clients go to pick up their materials, they’re finding the prices are higher. That impacts how they’re interacting with their clients,” he said.
In order to get their arms around this uncertainty, insureds and their risk management teams need to understand where to start. Knowing the risk areas and the impact of inflation on their business is step one in understanding how to overcome uncertainty.
Step two is finding a partner that will work toward solutions.
Here’s a deeper look at how economic inflation is impacting businesses, the risk areas organizations should be watching and how companies can start to eliminate some of the unknowns.
To learn more about AXA XL, please visit their website.