Inflation does not stop at insurers either. Added to this is the damage caused by climate change and the Ukraine war. Policyholders must reckon with sharply rising premiums.
In view of the increasing number of natural catastrophes and high inflation, the world’s largest reinsurers want to raise prices sharply. The customers of primary insurers such as Allianz and Axa will probably have to dig deeper into their pockets from 2023, announced the world’s third-largest reinsurer Hannover Re on Monday at the industry meeting in Monte Carlo. According to board member Michael Pickel, the premiums in Germany for motor vehicle insurance and private homeowners insurance have to rise significantly in order to cover the more expensive damage.
Pickel cited increased costs for car spare parts and repairs as the reason. Here alone, the price increases would be around ten percent. In the case of real estate, construction costs and values have jumped by around 15 percent. In addition, Hannover Re wants surcharges for increased risks – for example as a result of increasing natural disasters as a result of climate change.
In the so-called proportional business, reinsurers accept part of the risks from their customer contracts from primary insurers and receive part of the premiums in return. In other contracts, for example, they only step in for damages in the event of natural disasters above a certain total amount.
Conditions are explored
After a two-year break due to the corona pandemic, representatives of the reinsurance industry have been meeting with customers and brokers again in the Principality of Monaco on the Cote d’Azur since the weekend. At the “Rendez-vous de Septembre” they will be exploring the conditions for contract renewals in property and casualty business at the upcoming turn of the year until Wednesday.
World market leader Munich Re had already called for a significant increase in premiums on Sunday in order to compensate for the expected increase in claims. The second in the industry, Swiss Re, joined the demand.
The rating agency Moody’s expects the providers to prevail this time. “Primary insurers are increasingly accepting that they have to pay more for reinsurance protection,” Moody’s analyst Helena Kingsley-Tomkins told the financial news agency dpa-AFX in Monte Carlo. A year ago, only one in 40 primary insurers stated that they were expecting a price increase in non-life reinsurance, said their colleague Marc Pinto. “This time, 40 percent of those surveyed even expect an increase of more than 7.5 percent.”
Increasing loads
Hannover Re boss Jean-Jacques Henchoz referred to the sharp rise in inflation in many countries. Together with the war in Ukraine and the still unresolved corona pandemic, this is leading to ever greater burdens for insurers and reinsurers. Further price increases in the reinsurance business are therefore unavoidable.
According to estimates by Swiss Re and the rating agency Fitch, the insurance losses as a result of Russia’s war of aggression in Ukraine should be around 10 billion US dollars (9.9 billion euros). This is roughly equivalent to a medium-sized natural disaster, said Fitch analyst Harish Gohil. Direct war risks are generally not insured.
The actual sum depends primarily on court rulings on several hundred aircraft that foreign aircraft financiers leased to Russian airlines – and did not get back. In March, Fitch had estimated the damage caused by this alone at up to 10 billion dollars. About half of that is included in the most recent overall estimate, Gohill said. According to Hannover Re board member Sven Althoff, there was no longer any insurance cover for the aircraft after the contracts were terminated.
The fact that reinsurance protection will soon become more expensive in general is also due to a shrunken supply. The reinsurers’ capital had recently fallen due to the turbulence on the financial markets and the rise in interest rates. With less capital, companies can shoulder fewer risks than before.
“The industry is not short of capital”
The capacity for natural catastrophe covers in Florida is already tight, it said in Monte Carlo. The US state is repeatedly hit by hurricanes. However, Moody’s sees the capacity cuts by many reinsurers as a voluntary withdrawal: “The industry is not short of capital,” said analyst Pinto.
Meanwhile, Hannover Re is assuming that prices for hedging against natural catastrophe risks will rise in Europe – especially after the devastating flood disaster of July 2021 and the winter storms of February 2022. This will make natural catastrophe business more interesting for Hannover Re too, said Silke Sehm, member of the Executive Board.
Like Munich Re and Hannover Re, Swiss Re expects growing demand for reinsurance cover. The company also wants to expand its natural catastrophe business in the course of this, as it announced in the morning.
The big providers are less courageous when it comes to cyber insurance against hacker attacks and other incidents in computer systems. Munich Re and Swiss Re continue to assume that the cyber insurance market will grow to 20 billion dollars or more by 2025. However, they are reluctant to expand their business because of the extent of the impending damage.
“It must not be that we offer policies at premiums that do not cover the risks,” said Swiss Re manager Thierry Léger. After all, this area is still little explored. According to its own statements, Munich Re recently accounted for around 14 percent of the global cyber premium volume of around 10 billion dollars. For board member Torsten Jeworrek that’s too much in the medium term: “If the market develops, our market share will decrease,” he clarified in Monte Carlo.
Source: Stern
Jane Stock is a technology author, who has written for 24 Hours World. She writes about the latest in technology news and trends, and is always on the lookout for new and innovative ways to improve his audience’s experience.
