Global geopolitical tensions, macroeconomic developments and climate change result in heightened demand for risk protection. The (re)insurance industry needs to focus on modelling and contract certainty to ensure pricing is adequate for the risks taken and thereby increasing its capacity, Swiss Re said in a report released ahead of Les Rendez-vous de Septembre 2022.
Swiss Re CEO reinsurance Moses Ojeisekhoba said, “On top of impacts from COVID-19 and increasing losses from natural catastrophes, the (re)insurance industry is now confronted with issues like inflation, risk of recession and geopolitical tensions. We have proven our resilience by supporting clients and society throughout the last years by paying large insurance claims. As we see cost drivers accelerating in this dynamic risk environment, insurance premiums must be carefully calibrated to keep pace.”
Growth opportunities despite challenging environment
Geopolitical tensions, inflationary pressures and knock-on effects such as energy shocks, cyber threats and supply chain disruptions pose challenges for society and ultimately the (re)insurance industry. In addition, climate change is increasingly manifesting itself with no end in sight. At the same time there are significant opportunities to hedge this volatile environment with insurance solutions.
Increased risk awareness and exposures will result in more demand for insurance protection across all businesses and regions, translating into a positive outlook for premiums. For instance, Swiss Re Institute expects a $33bn increase in commercial premium volumes in the period from 2022 to 2026 because of supply chain reshoring. And if countries deliver on building all the renewable energy capacity that they have so far targeted, the investments in green energy are expected to generate additional energy-sector related premiums of $237bn by 2035.
The natural catastrophe re/insurance market is forecast to grow to about $48bn over the next four years from $35bn according to Swiss Re Institute. The market needs to keep up with growing loss trends and develop modelling capabilities for weather-related risks such as secondary perils.
Disciplined underwriting approach
The uncertain environment calls for more frequent adjustments to underwriting practices. Focusing on quality and margins as well as contractual clarity in the whole industry will be important in this respect.
Swiss Re group chief underwriting officer Thierry Léger said, “To enable the insurance industry to keep up with increasing demand, three factors will be key: evaluating and modelling the evolving trends, ensuring a shared understanding of contractual terms and generating improved technical margins to reflect the effective risk.” M