The need for insurance protection continues to grow due to increased exposures, risk awareness, and evolving client needs, according to Swiss Re's latest report.
Released in light of the Rendez-Vous de Septembre 2021, Swiss Re shared its view on the state of the market and possible implications for the renewal season.
In the new report, Swiss Re Institute claims that heightened risk trends increase the need for insurance protection, while also requiring a greater focus from re/insurers on evaluating and modelling risks and ensuring pricing is adequate for the risks taken.
“There is a clear recognition that claims' frequency and severity is rising as demonstrated by recent natural catastrophes or cyber incidents. This means the need for protection is growing, and the industry has important work to do in offering insurance and closing the protection gap,” said Moses Ojeisekhoba, chief executive officer of reinsurance at Swiss Re. “Swiss Re's extensive risk knowledge and very strong capital position allow us to support our clients in their growth ambitions.”
Swiss Re Institute also warned that climate change poses the most significant long-term threat to the global economy. According to the reinsurer, the economy is expected to lose up to 18% of gross domestic product as a result of climate change by 2050 if no mitigating actions are taken. Moreover, increased digitalization and interconnectedness are adding to the current risk landscape.
Consequently, the Institute sees a greater need for insurance protection translating into a positive outlook for premiums as they will need to reflect increased exposure. Particularly, the Institute expects non-life insurance premiums to rise 10% above the pre-COVID-19 level by the end of 2021 to US$6.9 trillion and surpass US$7 trillion in 2022 for the first time.
Swiss Re also advised re/insurers to prepare for elevated inflation risks, with consumer price inflation pressure expected to remain high in the near term. Meanwhile, medical and wage inflationary pressures, particularly relevant for non-life claims inflation, are expected to build up in the medium term.
“As the risk landscape evolves and risks become more complex, there needs to be an even greater focus on evaluating and modelling these risk trends and ensuring pricing is adequate for the risks taken,” said Swiss Re group chief underwriting officer Thierry Léger.
“Therefore, the importance of underwriting capabilities is further increasing, all the more given the persistent low-interest-rate environment. Accordingly, at Swiss Re, we continue to focus on scientific, technology-, and data-driven underwriting approach.”
Ojeisekhoba added: “We work with leading partners to address problems across the insurance value chain. We are convinced that through these partnerships and by leveraging Swiss Re's global capabilities and experience, we are best positioned to help our clients maximize value while driving measurable impact. This way, we collectively unlock new business models across the industry, push the boundaries of insurance, and reduce protection gaps.”