Hardening insurance markets are bucking the global recession trend, according to a new report from the Swiss Re Institute.
“Even before the COVID-19 crisis, low interest rates were severely undermining the profitability of the insurance industry,” wrote report author Jerome Haegeli, group chief economist at Swiss Re Institute. “Further rate cuts to help shore up the economic recovery are only going to exacerbate the challenges. And it’s clear that without significant price increases the insurance industry will not be able to meet the growing need for insurance protection in a commercially viable way. But after years of low prices and below-average profits, there are signs that insurance markets may finally be turning the corner, driven by commercial insurance lines.”
Haegeli said that the decline in global insurance premiums this year is of a similar magnitude to that seen during the Global Financial Crisis in 2008-2009. That’s significant, he said, because 2020’s estimated economic contraction of 4% is much steeper than the 1.8% contraction seen during the GFC.
“From this perspective, when looking ahead to global insurance premium growth, insurance markets are much more likely to bounce back quicker and harder than what global economic indicators would seem to imply,” Haegeli wrote. Such a recovery, he wrote, should boost growth in non-life insurance markets next year.
“On the one hand, premium growth will be negatively impacted by declines in lines linked to business activity,” he wrote. “On the other hand, prices in commercial insurance have been hardening, providing a tailwind to premium growth in the current year.”
Overall, Swiss Re Institute predicted a moderate reduction in global non-life premium growth due to COVID-19, then a strong rebound in global P&C premiums by 3.8% in real terms next year.
“Another reason to be cautiously optimistic about the future of insurance markets is that we’re finally seeing rising prices,” Haegeli wrote. “A number of lines – including credit and surety as well as liability – are likely to experience higher claims this and next year. And rising claims tend to trigger higher rates.”
Swiss Re Institute projected strong rate increases in credit and surety and moderate increases in other affected lines of business and portfolios, including directors and officers and medical malpractice. The low-interest-rate environment is also likely to boost prices in commercial insurance markets, Haegeli wrote.
There’s also been growing momentum in commercial insurance, according to the report.
“Non-life commercial insurance providers have reported double-digit price increases for a variety of lines of business across all major global regions for 2019,” Haegeli wrote. “Prices have been rising, as peak losses and accelerating claims inflation have forced the industry to respond.”
Some insurers have hiked prices dramatically in loss-affected lines, while others have withdrawn completely from certain geographies, pushing prices higher due to reduced underwriting capacity, according to the report.
“These various actions have had a positive impact on the overall rate environment, and we expect the trend to grow stronger in 2021,” Haegeli wrote.