Economic Factors in Liability and Property Insurance Claims Costs

The original paper with this title was published in 1968, following presentation at a Casualty Actuarial Society meeting. This is another up-date of indexes in the economic model—first report of 1976 and a forecast for 1977. These LPI indexes measure economic factors affecting loss and loss adjustment settlement costs which are incurred after claims have been reported. The indexes measure direct claims costs and not the reinsured excess losses which would be more adversely affected by inflation.This is a Claims Market Place concept of the loss settlement function of the insurance company. Claims Costs (our economic cost of production) result from purchasing of services under unusual circumstances in controversial, severe, hasty and often emergency situations. Claims settlements can take place in court rooms, lawyers' offices, repair garages and hospitals. The legalistic atmosphere is often one of friction and excessive demand rather than of a normal commercial esprit de corps. The procurement of these claims services requires dealing with high cost furnishers of services: doctors, clinics, hospitals, lawyers, repair garages or body shops, building trades, house furnishings.