There is no prospect of a return to an easing cycle in global commercial insurance prices as the current global volatility and its inflationary effect continues, according to a series of industry figures who spoke to the Financial Times.
Interviewed recently by the FT, industry executives all agree that commercial insurance prices are likely to continue to rise, with the tightening trend expected to either pick up speed again or simply drag on and spread to rates similar to what we see today.
Which also has a positive cross-reading for reinsurance pricing, with tighter reinsurance rates also likely to be prolonged due to ongoing global crises over geopolitics, capital markets and chain effects. supply.
Commercial insurance pricing has already tightened significantly in recent years, but with continued pressure on the profitability of insurers and reinsurers, exacerbated by global events, it seems unlikely that the trend will return to the business cycle. softening that we experienced a few years ago.
Convex CEO Stephen Catlin told the FT that “it’s not a pretty picture”, adding that he thinks the rise in global reinsurance prices could pick up speed again due to the many factors that increase volatility today.
The ongoing conflict in Ukraine following Russia’s invasion of the country is a factor that may affect commercial insurance and reinsurance prices.
Already, the dispute is believed to be likely to result in one of the largest losses ever in the leased line industry, and likely to become the largest insured loss related to political violence.
But the fallout from it and the way it increases risk aversion, while affecting other countries and also leading to inflationary effects, as well as sanctions-related impacts, could prolong any effect from the loss alone. Of the industry.
Catlin believes re/insurers need to price appropriately to reflect the expectation of higher costs in the future, which we also see in the catastrophe reinsurance industry.
It’s not about ‘filling your boots’ as an insurer, Catlin told the FT, it’s more about staying in business, he explained.
David Flandro, head of analysis at Howden, said inflation, conflict losses and risk aversion are all poised to “create a longer hard market”.
Airmic CEO Julia Graham said she expects tough times for insurance buyers to continue as price rises persist, but also noted it could lead companies to turn to more captives.
Marsh representative Christopher Lang said a “lengthening” of the tightening trend was more likely than an acceleration in the rate.
But Mactavish CEO Bruce Hepburn told the FT the price increases could last for several years, possibly longer than anyone active in the industry has seen in the past.
All of this suggests that we are in uncharted territory when it comes to the hardening of the insurance and reinsurance markets.
In addition to the fallout from the conflict in Ukraine and the sanctions against Russia, inflation is rampant for many other reasons, while supply chain disruption also continues apace.
China’s continued mission to reach zero Covid is one driver of this, with lockdowns spreading across the country and significant effects already being felt in supply chains and logistics.
With shortages of some commodities now expected, including microchips and other items essential to global manufacturing and technology, while a global food crisis also looms on the horizon, wider effects are likely cause inflationary pressures for some time.
In a world of growing risk awareness and aversion, and under the constant threat of climate-related risks, all this suggests that an easing of insurance or reinsurance rates is unlikely to happen for some time. weather.
What could drive rates down, or at least stop them rising?
It seems to us that the influx of capital into the industry may no longer be enough to reverse the firming of prices linked to the inflationary effect and that, in order for prices to fall, the industry will have to reduce the costs of the chain marketing in a much more meaningful way than it has. been achieved over the past decade.
Of course, when costs and expenses are reduced, they tend to be passed on to profits and shareholders, rather than to the insurance consumer.
So even then, if significant efficiency gains were made in the market structure itself, there is no guarantee that this would actually reduce prices, although it might at least slow progress.