Casualty insurance has been a difficult line of business in many markets around the world for some time. The profit margins are generally quite thin, driven by long-tail challenges and inflated claims in areas like transportation, pharmaceutical product liability, and catastrophic property (to name just a few).
Despite this challenging backdrop, Swiss Re’s global head of casualty reinsurance, Jason Richards, remains optimistic. The global economy is growing and insurance premiums around the world are growing in tandem, he said. Swiss Re projects a 5% increase in insurance premiums over the next few years, which will stem from both property and casualty lines.
“Exposure is growing around the world, especially in large urban areas. As wealth increases, the demand upon insurers will grow and the demand for casualty insurance will also grow,” Richards noted. “Importantly, there’s also a very significant retention gap around the world, both in the short-term lines but also in the casualty space, presenting opportunities for growth.”
The past decade has been “a pretty challenging time” for the industry, according to Richards. There has been a significant increase in casualty losses coming out of short-term events like wildfires, floods and mudslides – all perils exacerbated by climate change and urbanisation. Furthermore, the transportation sector remains challenging, both in personal and commercial auto, with issues like distracted driving, driver shortages, and inflated jury awards for bodily injury and other damages, causing a significant uptick in claim severity.
As global casualty markets get to grips with loss management and mitigation in the traditionally challenging lines like transportation and pharmaceuticals, new risks like cyber, technology-related exposures, and active shooter / mass terrorism are asking new questions of the industry. Speaking at Swiss Re’s 2019 Canadian Insurance Outlook meeting, Richards outlined some of the key risks casualty insurers need to think about for the future.
“Moving forward, the pharmaceutical and biotech industry will continue to be a challenging topic. The complexity around the pharmaceutical business and the supply chain still represents significant risk,” said Richards. “There are risks associated with chemicals used in every day products, like cosmetics, that might potentially impact the hormone system or the sub-domain. That’s a topic we need to think about.”
Another ongoing challenge for insurers to battle against is the opioid crisis, both in the US and in other parts of the world. The issue is affecting pharmaceutical producers, distributors, and physicians – and lawsuits are on the rise. In the US, for example, over 2,000 suits have been filed so far by local and state governments naming opioid manufacturers.
“Infrastructure is a big topic – both ageing infrastructure in mature markets, but also the emergence of new infrastructure and new technology, which create both risks and opportunities at this time,” Richards added. “For example, electrical grids around the world have been undergoing numerous changes and alterations with the aim to increase efficiency, flexibility, and to reduce carbon impact. New technology [like battery energy storage systems] is really exciting, it’s good for society, and it’s under fast-development. It creates an opportunity for our industry but there’s a lot of things we need to learn.”
While safety and risk management regimes are generally improving around the world, and loss frequencies are reducing, there remains problematic sub-sections of weak infrastructure management and repair, according to Richards. Examples might include continuing environmental claims in the oil and gas industry, mining and damn losses in the US, and recently with the catastrophic Genoa bridge collapse in Italy. The industry is also seeing increased loss incidents from fires in high-rise buildings, as seen with the Grenfell Tower loss in London, UK. Such fires don’t just impact the property lines of business, but they also create a secondary wave of claims into casualty financial lines.
“The transportation sector is also undergoing a dramatic change, generally in a very positive way,” Richards added. “Technology and data insights are helping us to reduce the risks associated with us as individuals and with our vehicles. Telematics is growing dramatically around the world, and that’s leading, over time, to improved driver behaviour. The car manufacturers are also invested heavily in driver safety features, and that will also, over time, dramatically improve driver safety. It won’t happen overnight; it will happen over time.”
What casualty lines do you find most challenging? Let us know in the comments section below.