Reinsurance increases will be passed onto buyers, says Lockton
But new competition is seeing pricing moderate in primary markets
Reinsurers continue to warn of the strain on pricing from sustained inflation, increasing claims, climate change, the ongoing impact of the pandemic and other global economic headwinds, according to Lockton. It says insurers will inevitably look to pass some of these costs onto insurance buyers.
In its Insurance Market Update – H2 2022, Lockton says rising inflation is fuelling claims cost as the values insured increasingly fail to reflect replacement costs. “Due to the quickly changing operating environment, insurers are requesting more information around the insured’s risk management framework. Insurance buyers need to be prepared to demonstrate the impact of inflation on the business and have a narrative if such increases do not demonstrably lead to an increase in risk.”
However, Lockton notes that rate increases are generally becoming more moderate and, in some risk areas, insurers are already looking to grow their portfolios. “Insureds will benefit from this increased competition, as incumbent and new market capacity compete for quality business… 2022 has seen a return of insurers looking to offer long-term agreements. This has become a useful tool in helping insureds navigate the challenges of a volatile economic outlook.”
Alex Boswell, partner, Lockton, writes in the report: “Insurers will have to combat rising claims costs and increased wage inflation, and be proactive with their reserving practices to ensure recent years’ corrective pricing action is not eroded. The Atlantic hurricane season started quietly, with only three tropical storms to form by the end of August, the lowest number in nearly 40 years. However, hurricane Ian and other predicted storm systems have shown the volatile nature of the season, with September ending with significant property damage and tragic loss of life.”
He adds: “Despite these macro and global challenges, the insurance market has seen greater competitive opportunities for buyers, particularly for well-managed risks with a compelling narrative around environmental, social and governance, strong risk management and good claims profiles. Cyber remains a significant outlier, with increased loss activity, shortage of capacity and minimum-security protocols making this a continued challenging market.”
He says there are several market signs that encourage optimism for insurance buyers in most coverage classes, but this optimism needs to be tempered with ongoing and future global economic challenges that may lead to more caution among insurers moving into 2023.
