Strategy for Property-Liability Insurers in Inflationary Times

Analysis of economic data indicates that inflation has both increased and become more variable over the last fifteen years. Inflation has a considerable effect on insurance profitability by impacting both components of insurance operations, underwriting and investments. Since the elimination of inflation in the near future is extremely unlikely, the insurance industry must decide whether to continue to accept the risk of uncertain inflation or whether to protect against changes in inflation. This paper presents a strategy for inflation immunization for the property-liability insurance industry and measures the cost of this strategy.