Inflation to drive further market hardening as insurers work to avoid liability crisis, says Berger

Ever-rising inflation is set to lead to further P&C market hardening as insurers face up to higher claims and ensure they avoid a liability crisis similar to the 1980s, Andreas Berger, CEO of Swiss Re Corporate Solutions, told delegates at Commercial Risk’s latest event. Giving the keynote speech at our global programmes event in London today, Berger said already high inflation is only going to rise further because of the war in Ukraine and is bringing particular challenges for P&C insurers through claims inflation. When high inflation reared its ugly head back in the 1980s, it led to a “full-blown” and “disastrous” liability crisis in the insurance industry, he said at the event, held in association with Airmic and the IRM. And in order to ensure the market doesn’t get into trouble again, Berger warned risk managers that the insurance market, which has recently shown signs of stabilising, will need to harden in both liability and other P&C lines. “We expect claims inflation to impact P&C insurers’ profitability in 2022, leading to further market hardening in 2023. That is at least what the models say at the moment,” he said. “In the face of rising inflation we must avoid the trap of reduced premiums, because we always have to make sure that inflation is factored into our costing and reflected in pricing,” said Berger. Otherwise, there is a danger of recreating “the huge gap” between insurance pricing and losses that previously led to the “sustained unprofitability of our sector”, he added. The CEO said that in the medium to longer term, business lines with longer tails, such as general liability and employee benefits, will be the most exposed to sustained, elevated inflation. In the near term, property and motor will likely be hit hardest, with price rises in construction and car parts outstripping those in the wider economy, he continued. “Increasing construction prices, growing at rates faster than general CPI inflation, are putting particularly high pressure on property claims,” said Berger. “In the US, by the end of 2021 the construction sector had a sustained inflation rate of 5.1%, double the average of the past decade, and is predicted to continue growing at 7% to 8% for 2022. In EU, construction costs in the residential building sector were up by 10% in 2021,” he explained. Berger advised corporate risk managers to engage early with insurers and brokers to help deal with what he predicts will be further insurance market hardening. They should also ensure they have properly set property valuations, are focused on risk management and have enough budget to cope with the rising costs from inflation, he said. “Early conversation will be key for all parties – clients, brokers and insurers – to prepare for potential changes in policy structures and wordings. Reassessment of property valuation is also key to ensure correct property valuations are provided to the market and ensure policies can cover increased recovery expenses and, especially, longer business interruption periods,” he said. “A focus on risk management measures [is also important] to help prevent potential claims. Ultimately, effective risk management is at the heart of ensuring businesses are ready for a change in economic conditions,” he continued. “And it is the budgetary period soon. We recommend risk managers bring all these elements on inflation into your budgeting process, so there are no bad surprises. It is also about managing expectations internally,” added Berger. Commercial Risk’s ‘Managing global programmes in a changing world’ conference is being held on 15-16 June in London and online. You can access the coverage here: www.commercialriskonline.com/events/global-programmes-2022 AIG, Zurich, AXA XL and Marsh are partnering the event, along with AXCO, ChainThat, Generali Global Corporate & Commercial, Globex, QBE, Sompo International, Swiss Re Corporate Solutions, TMF and WTW.

Inflation to drive further market hardening as insurers work to avoid liability crisis, says Berger

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