III Senior Economist: Pandemic-Related Shipping, Labor Shortages Continue to Drive Inflation
As the pandemic continues to hamper shipping and disrupt labor, demand-driven inflation is likely to continue, said Michel Leonard, vice president, senior economist and data scientist, Insurance Information Institute.
Insider Engage spoke with Leonard at the Joint Industry Forum in New York. The following is an edited transcript of the interview.
Q: What are you seeing in terms of the timeline for supply chain disruptions?
A: COVID and restrictions on travel on people and goods have really sent delays through the shipping routes. I'm talking about containerized shipping, for example, the kind of things that are made in Asia and made elsewhere in the world that come through the ports of Newark and LA. It's not just taking twice as long on some of these routes to get here — when they get here, it's also six times as expensive. So right away, that means that there aren't any cars in the parking lots, that means that if there are cars there, they're more expensive. Our view — and the consensus view here — is it will take about two years to get back to [pre-Covid inflation.] This is without Omicron. This is without a new pandemic, or another virus and so forth. And that's really important, because one of the things folks need to understand about COVID is that it's been transformative. Of course, we all know that. We will have more of these incidents of pandemics — they may be better controlled — we're learning from them, but it's very hard. All of these forecasts, all of these timelines, you're hearing about the need to have a caveat about these developments.
Q: What does that mean for inflation?
A: Basically, it means it's going to have more inflation until this is over. So prices will remain elevated. That's the bottom line. And I want to look into the details of this and open this up a bit.
First, it's going to mean that goods aren't here; they're going to be delayed or aren't here. You're going to order something on Amazon that you expect it to be there tomorrow, but it's going to be here in two weeks. That means there's going to be more folks competing for those goods. That's what we call demand-driven inflation.
It also means that some goods just aren't going to be available. And that's cars for example, so car lots are sitting empty. That means that construction materials, framing lumber, a lot of it from Asia, Canada — a lot of the framing lumber from Asia is not going to be delivered.
We need to get the supply chain back in place. We need to get that back in place so that goods are available. And then we can realize what you know, we economists like to think of like supply and demand.
Q: What do you expect to see in growth for the insurance industry?
A: Well, once we've taken care of the supply chains, we're going to put inflation down. Now why is inflation so important for us in the industry: because of replacement costs. So right now, if we're working on the auto lines — both commercial and personal auto — there's a shortage of labor as well disruptions in labor. That means that repair costs, which insurance companies cover, of course. But it means that those those costs are still very elevated, and it's going to take about a year again to come down. It means that the parts are hard to come across. So for example, when your car in in the shop, you might need a rental for one or two or three weeks.
Now the other part of this is growth. We insure as an industry homes once they're completed. There are a lot of homes this year, and I'm sure you and some folks in the audience have read all about how many home starts there are, yes, but they're not completed. Because lumber is missing and labor is taking longer. So we need these homes to be completed. We expect it's going to take to about end of , early  until we can get macro economic fundamentals aligned for peak insurance growth.