There’s no prospects of a return to a softening cycle in global commercial insurance prices while the current global volatility and its inflationary effect continues, according to a range of industry personalities who spoke with the Financial Times.
Interviewed by the FT recently, industry leaders all agree that commercial insurance prices are likely to keep rising, with the hardening trend either set to accelerate again, or simply to be prolonged and extended at similar rates to what we see today.
Which has a positive read-across for reinsurance pricing as well, with the hardening of reinsurance rates also likely to now be prolonged due to ongoing global crises in geopolitics, capital markets and supply chain effects.
Commercial insurance pricing has already hardened considerably over the last few years, but with continuing pressure on insurer and reinsurer profitability, exacerbated by global events, it seems unlikely the trend will revert back to the softening cycle we saw a few years ago.
Convex CEO Stephen Catlin told the FT that, “It’s not a pretty picture,” adding that he believes global re/insurance price rises could speed up again as a result of the numerous factors heightening volatility today.
The ongoing conflict in Ukraine after Russia invaded the country is one factor likely to affect commercial insurance and reinsurance prices.
But the fall-out from it and how it is driving risk aversion higher, while affecting other countries and also driving inflationary effects, plus sanction related impacts, could prolong any effect of the industry loss alone.
Catlin believes re/insurers need to price adequately to reflect the expectation of higher costs in the future, something we’re also seeing in property catastrophe reinsurance business.
It’s not about “filling your boots” as an insurer, Catlin told the FT, rather it’s about staying in business, he explained.
David Flandro, analytics chief at Howden, said that inflation, conflict related losses and risk aversion are all set to “create a longer hard market.”
Airmic’s CEO Julia Graham said to expect tough times for insurance buyers to continue, as price rises persist, but also noted this could lead companies to look to captives in greater numbers.
Marsh representative Christopher Lang said that an “elongation” of the hardening trend was more likely that rate acceleration.
But Mactavish CEO Bruce Hepburn told the FT that price increases could run for a number of years, perhaps longer than anyone active in the industry may have seen in the past.
All of which suggests we’re in uncharted territory, as far as hardening insurance and reinsurance markets go.
Alongside the fall-out from the conflict in Ukraine and the sanctions on Russia, inflation is rife for many other reasons, while supply chain disruption is also continuing at-pace.
China’s continued mission to achieve zero-Covid is one driver of this, with lockdowns spreading in the country and significant effects already felt in supply chains and logistics.
With shortages in certain commodities now expected, including micro-chips and other items that are essential to global manufacturing and technology, while a global food crisis is also on the horizon, there are broader effects which are likely to cause inflationary pressure for a time.
In a world of rising risk awareness and aversion, plus under the constant threat of climate-related risks, this all suggests softening of insurance or reinsurance rates is unlikely to be seen for some time.
What could cause rates to soften, or at least to stop rising?
It seems to us that capital flowing into the industry may no longer be enough to reverse inflationary-effect related pricing firming and that for prices to come down, the industry will need to cut costs from the market chain in a far more meaningful way than has been achieved in the last decade.
Of course, when costs and expenses are cut they do tend to flow to profits and shareholders, rather than to the insurance consumer.
So even then, if significant efficiency gains were realised in the market structure itself, there’s no guarantee it actually reduces prices, although it could at least slow the advance.
