What's behind the record run of increasing global commercial insurance prices?

What's behind the record run of increasing global commercial insurance prices? | Insurance Business Australia


The Global Insurance Market Index released last week by Marsh showed yet another quarter of increasing global commercial insurance prices. According to the insurance broking and risk management giant, prices increased 15% in the second quarter of 2021.

“It’s a record in my working life which is 44 years,” said John Donnelly, head of global placement Asia-Pacific at Marsh.

“We’ve only been keeping statistics on it since 2012 so it’s certainly the first time since 2012 there’s been that number of quarters in a row of price increases.”

Globally, commercial insurance prices have now been on the rise for 15 quarters. Donnelly said the Pacific region had actually experienced 17 quarters of consecutive increases.

“It’s all the major classes of insurance, including property, liability, marine, directors and offices, all incorporated into a composite price index,” he explained.

Despite the increasing number of cyberattacks across the world and the expense of guarding against them, Donnelly says that isn’t the main reason for the record run.

“It’s not actually,” he said. “What’s been driving those increases for the last 15 to 17 quarters is poor profit results for insurance companies, or they’ve been losing money over that period of time due to global catastrophes and a suppressed pricing environment for the preceding 10 to 12 years.”

But, despite these difficulties, revenues for insurance companies have continued to rise. Fourth quarter 2020 price rises contributed to Marsh’s parent company, the global professional services firm Marsh McLennan, reporting 2020 full-year revenue growth of 3%.

Read more: Marsh & McLennan reports Q4 and full-year results

During the first six months of this year, the catastrophe count has been relatively low, both in Australia and around the world.

“But if you think back to your ABC News for December, January and February of 2020, it was dominated by bushfires and floods, which cost a lot of money for the insurance companies,” said Donnelly.

Read more: Revealed: Loss figures from H1 2020 natural catastrophes

He said from the perspective of both claims and price increases, cyberattacks have only become an issue over the last 12 months or so.

However, the Marsh report also details that the second quarter of 2021 also marks the third consecutive quarter to show a fall in the average rate of increase. The fall follows a year-on-year average increase of 22% in the fourth quarter of 2020.

“We believe, and our statistics bear this out, that the peak of the market was Q4 2020,” he said. “So for the first two quarters of this year we’ve seen a reduction in the size of increases across the market.”

Donnelly says a combination of factors explain why the rises are starting to moderate.

“Firstly, insurance companies’ results have improved,” he said. “Secondly, after putting brakes up for such a long period of time they’ve got much closer to what their technical pricing is.”

Technical pricing is based on a calculation of expenses from actuarial projections which comes up with a price insurers need to charge for a risk.

“And I guess the other factor is, if you look at the first two quarters of this year, globally, and this is also the case in Australia, insurance companies’ results have improved. The catastrophe environment has been very benign for the first six months of this year. So there’s less pressure on the price that they need to charge companies,” said Donnelly.