Claims inflation will extend hard market - sigma

Swiss Re Institute’s latest World Insurance sigma forecasts strong global insurance market growth in 2022 and 2023 with total premium volumes expected to rise above $7 trillion for the first time ever by the end of this year.

However, the combination of a sharply slowing global economy and a multi-decade-high inflation will weigh on total premium growth with an expected below-trend 1.2% annual average growth in real terms over the two years.

Hard market continues, driven by claims inflation

Rising claims’ costs are seen extending rate hardening, the latter improving underwriting profitability and underpinning premium growth in 2023. Furthermore, rising interest rates will over time also support industry profitability by yielding higher investment returns.

Jerome Haegeli, Swiss Re’s Group chief economist, said: “Even in the face of a challenging economic environment, insurance remains a vibrant, resilient and growing industry – and reaching the $7 trillion mark for global premiums is a major milestone.

”However, these are not easy times, and the insurance industry will need to keep a close eye on inflation. As the world gets more expensive, so do the costs of accidents and natural catastrophes – and this makes claims more expensive.

”However, there is a silver lining, as central banks take action to combat inflation, higher interest rates will support insurers’ profitability in the medium term.”

Key findings from the report include:

• A strong 6.1% growth forecast in total global insurance premiums in 2022 in nominal terms, surpassing $7 trillion in total volume for the first time. This is supported by solid employment and income growth, hardening property & casualty premium rates and heightened risk awareness for mortality and health risks. At this level, volumes will be 17% higher than at the onset of the COVID-19 crisis, reflecting the resilience of insurance markets over the course of the pandemic.
• The current high inflation environment will weigh on premium growth in real terms and increase claim costs for non-life insurance. Profitability pressures from economic inflation will rise most in lines such as property and motor, where supply shortages are leading to price increases beyond the surging overall inflation. High wage and healthcare inflation is pushing up claims’ costs for casualty and health insurance.
• Rising claims’ costs will also extend rate hardening, restoring underwriting profitability and supporting premium growth in 2023. Thus, the industry will exhibit resilience in the face of the economic slowdown and return to real growth in 2023.
• Non-life premiums are forecast to rise by 7.1% in nominal terms in 2022, amounting to $4.1 trillion globally by the end of the year. Accounting for inflation, this will amount to 0.8% growth. For 2023, premiums are forecast to grow by 2.2% in real terms, based mostly on ongoing rate hardening. Growth is expected to be stronger in commercial than personal lines.
• The US remains the largest insurance market in the world, with total premiums of $2.7 trillion in 2021. The US grew 8.1% in nominal terms in 2021.
• China is the second largest market with over $700 billion in premium, accounting for 10.1% of the total global insurance volume.  
• In Europe, both the UK and France showed strong growth in nominal terms in 2021, with 16.7% and 24.0% increases in total premium volumes, respectively. They remain the 4th and 5th largest markets globally.