Given the increasing number of natural disasters and high inflation, the world’s largest insurance companies want to tighten the price screw. Customers of mainstream insurers such as Allianz and Axa will probably have to dig deeper into their pockets from 2023, the world’s third-largest insurer Hannover Re announced on Monday at an industry conference in Monte Carlo. According to board member Michael Pickel, premiums in Germany must increase by ten percent or more for car insurance and private home insurance just to cover the effects of inflation.
The main reason he gave was the increase in the cost of car parts and repairs. For this alone, primary insurers will have to increase car insurance premiums by almost ten percent in 2023. In residential building insurance, they even take 15 percent, because construction costs and property values have increased by that amount. In addition, according to Pickel, there is an additional payment for increased risks – for example due to the increase in natural disasters due to climate change.
Conditions are being investigated
In what is known as proportional trading, insurers take a portion of the risk from the primary insurers from their clients’ contracts and in return receive a corresponding portion of the premium. In other contracts, for example, they only intervene for damages in the event of natural disasters over a certain total amount.
After a two-year break due to the corona crisis, representatives of the insurance industry have been meeting with their clients and brokers again since this weekend in the Principality of Monaco on the Cote d’Azur. They are still exploring terms to renew contracts in the asset and casualty business for the upcoming turn of the year as of Wednesday.
On Sunday, the world’s largest reinsurer Munich Re insisted on an increase in reinsurance premiums to cover expected large losses in the coming days. On Monday, the world’s second largest, Swiss Re, joined the call.
“The long-term trend towards higher loads”
“In many regions, inflation rates are higher than they have been for decades,” said Jean-Jacques Henchoz, head of Hannover Re. “Combined with the war in Ukraine and the still-unresolved crisis, this is fueling a long-term trend towards increasing burdens on insurers and reinsurers.” Further price increases are therefore inevitable in property casualty insurance. This also applies to areas that were not recently affected by high levels of damage.
How costly the consequences of Russia’s war of aggression in Ukraine will be for insurers and policyholders remains to be seen. Like Swiss Re, rating agency Fitch now uses a total insured loss of around USD 10bn (EUR 9.9bn). This corresponds to a moderate-sized natural disaster, said Fitch analyst Harish Gohil in Monte Carlo.
The exact amount depends mainly on court rulings regarding several hundred planes that foreign aviation sponsors leased to Russian airlines – and now cannot return. Fitch had estimated the potential damage at up to $10 billion in March. If insurers have to take full responsibility for this, the total insured damage from the war could rise to around 15 billion, Gohil said. On the other hand, only 5 billion can imagine.
The fact that retail insurance contracts may be more expensive overall in 2023 is also due to reduced supply. Reinsurers’ capital has fallen recently due to turmoil in the financial markets and rising interest rates. Ratings agency AM Best predicts a decline of more than eight percent to $435 billion for 2022 overall. This will be the first time since 2018 that global insurance capacity has decreased. With less capital, companies can bear fewer risks than before.
© dpa-infocom, dpa:220912-99-727940/3 (dpa)