More hurricanes, heavy rains and forest fires are likely to increase the costs of the insurance industry. This cannot always be reflected in end customers’ premiums.
An increase in forest fires, severe hailstorms and floods is not deterring major reinsurers from taking on further catastrophe risks. However, the world market leaders Munich Re, Swiss Re and Hannover Re are once again demanding more money from primary insurers such as Allianz and Axa – and no longer want to have to constantly step in for smaller and medium-sized storms.
The industry is expecting another expensive year of natural disasters in 2023, as representatives made clear at the traditional industry meeting in Monte Carlo.
At the “Rendez-Vous de Septembre”, as the meeting is officially called, in the Principality of Monaco, reinsurers and primary insurers have been exploring the conditions for contract renewal in property and casualty business at the turn of the year since the weekend.
More damage – higher prices
Accelerating climate change is likely to contribute to an increase in tropical cyclones, heat waves and winter frosts, extreme rainfall, forest fires and severe storms, Hannover Re said. The board recalled the recent fires in Hawaii and the floods in Slovenia and Austria. High inflation makes insurance claims even more expensive.
This also affects motor vehicle insurance, where rising prices for spare parts and repairs are expensive. In order to get into the black for the long term in 2024, companies would have to increase their customers’ premiums by around 20 percent, said Hannover Re Germany boss Michael Pickel. But this is unrealistic.
In 2023, motor vehicle insurers would have only increased premiums by an average of three percent. Ten percent would have been necessary to avoid slipping into the red, explained Pickel. As the largest motor vehicle reinsurer in Germany, Hannover Re has particularly good insight into the tariff structure of motor vehicle insurers such as Huk Coburg and Allianz.
“We have an appetite for natural catastrophe risks”
While some reinsurers no longer want to cover damage caused by natural catastrophes, the three big players in the industry continue to not shy away from such risks. “We have an appetite for natural catastrophe risks,” said Munich Re board member Stefan Golling on Sunday. On Monday, Swiss Re and Hannover Re also made it clear that they would like to continue to grow in this business – but not by hook or by crook.
“The price of risk is rising,” said Hannover Re boss Jean-Jacques Henchoz. “That is clear to all of us here in Monte Carlo.” Hannover Re has already achieved significantly more adequate prices and conditions in the renewal rounds of the current year. “However, these improvements are not enough given the still challenging risk situation,” said Henchoz.
Primary insurers had continued to increase their profits for years – while burdening reinsurers with unpleasant risks.
Insurance protection with government help?
At the conference, the Hannover Re leadership advocated, in collaboration with governments, making risks insurable for which there is currently no or insufficient cover. These included risks such as the corona pandemic, which led to nationwide lockdowns. “We cannot insure such a risk,” said Henchoz.
According to the manager, the same applies to risks relating to computer systems, the Internet and data, which have so far only been covered to a small extent by so-called cyber insurance. What is needed here is cooperation with governments, where the state steps in when the damage reaches a certain amount.
Source: Stern
