As the insurance industry begins its outlook reporting for 2023, many experts have noted that reinsurance renewals and new business are likely going to experience price hikes in the next year. After years of uncertainty in the market due to global crises, political turmoil, and environmental collapse, it's not entirely a shock but rather something to prepare for in the months to come.
The reinsurance market is typically a reflection of the standard insurance market and the global geopolitical and economic climate. Since reinsurance carriers assume the risk of other insurance carriers' risk portfolios, it makes sense that if traditional risk and prices increase, reinsurance will follow. Currently, just about every business and industry are being affected in way or another by inflation. The United States' most recent consumer price index (CPI) report revealed inflation remained high at a staggering 8.3% in August. The report noted this inflation is largely due to increased prices pertaining to food, shelter, energy, medical care, and motor vehicles/motor vehicle insurance. At this point in time, there is no short-term plan set in stone to reduce further inflation, and most experts predict a continuous increase through 2022.
Regarding the effect inflation has had on reinsurance, Jean-Jacques Henchoz, CEO of Hannover Re, said in a recent statement made on behalf of The Hanover: “The inflation rates in many regions are higher than they have been in decades. Combined with the war in Ukraine and given that the pandemic has still not been overcome, this is fueling the long-standing trend towards ever-higher loss burdens for insurers and reinsurers.”
Many experts in the field are even going as far as to say that re-insurance will spike higher and faster than primary insurance as a means to prepare for the inevitable. Carriers continue to monitor their risks across the industries. It is apparent that we are experiencing the increased cost of labor, supplies, and transportation of goods while simultaneously experiencing a decrease in accessibility to them. This combination promises more delays, more supply chain issues, and more room for risk.
Aside from traditional goods and services, the environmental outlook across the nation is calling for an increased need for reinsurance. The first six months of 2022 amounted to $39 billion in insured losses, which is 18 percent above the 20-year average. The dramatic increase in costs
of catastrophe claims and their steep costs have led reinsurance carriers to either pull out of the risk or preemptively jack up their premiums to maintain profitability. From the wildfires in California to the massive flooding and hurricanes in Florida, the environmental outlook is concerning nationwide. New flood maps have indicated a potential 26% increase in flood damage in the next 30 years and many carriers have already pulled out of western states prone to fires. For the primary and reinsurance insurance companies that are continuing to cover the risk, these future outlooks will impact their pricing decisions as we continue to see predictions come true.
Aside from the predictions of experts within industries, general inflation for a long duration of time threatens the stability of re-insurance carriers. Typically if the inflation lasts beyond 2 years, margins become less predictable, usually starting with property lines reinsurance, and eventually manifest into pressure to conserve capital across other affected industries. When the market experiences this level of instability, price increases are the best way for carriers to ensure they can properly protect the risk.
Currently, there isn't one single event affecting the economy and leading us down a path of inflation. We’ve experienced multiple catastrophic events globally that have brought us to this point in the economic crisis. While still recovering from the Covid-19 pandemic, insurance carriers are faced with the challenge of risk protection alongside additional economic downturn from the new war in Ukraine, environmental threats, and social inflation.
Though as a nation we have overcome a long list of unforeseen burdens since 2020, we are still facing the economic backlash from years of job losses, the closing of all businesses, and severe business interruption. The effect it has had on insurance costs was inevitable, and the focus now is on predicting how long it will last, and how to maintain coverage during these times.
While Insureds may face increased prices during these times, it is a more important time than ever to have risk protection. If the risk is increasing to the point that primary and reinsurers need to adjust their premiums, so is the potential for loss. Securing coverage for your business and ensuring that a reputable insurance carrier covers your vulnerabilities is key to making it through these economic challenges. Reinsurance isn't going anywhere, and though there may be some changes to premiums and some carriers withdrawing from select markets, the long-term outlook on the industry remains strong.
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Have you recently consulted on your insurance program? The industry changes regularly and it's important to keep up with industry trends, economic changes, and potential new risks in your businesses. ECBM has agents and consultants who are experienced and passionate about helping businesses secure the right coverage at the best cost. As we face new and old challenges, having someone who understands the complexities of your business may face is an invaluable tool in your compliance strategy. For more information on our services and how we can help your business, contact us anytime.
