Rate hardening in commercial lines is forecast to drive strong nonlife premium growth globally, but the impact of high inflation will weigh on total premium growth, according to a Swiss Re Institute report.

Swiss Re is forecasting higher rates of inflation for the current decade than the previous one. This will increase claim costs for nonlife insurance, and, in turn, this will extend rate hardening.

Swiss Re forecasts strong 6.1% growth in total global insurance premiums this year in nominal terms, surpassing $7 trillion in total volume for the first time.

Nonlife premiums are forecast to rise by 7.1% in nominal terms, amounting to $4.1 trillion globally by the end of the year. Accounting for inflation, this will amount to 0.8% growth, according to Swiss Re. For 2023, premiums are forecast to grow by 2.2% in real terms, based mostly on ongoing rate hardening, with strong growth expected in commercial lines.

The report said the main inflation impact will show in rising claims costs, particularly in nonlife business.

“We expect property and motor to be most impacted in the near term. In construction, supply disruptions and labor shortages have led to an increase in repair and rebuilding costs, and, in turn, higher claims,” the report states. “In motor, claims costs have risen as shortages of parts have kept the prices of new and used vehicles historically high. Accident, motor liability and general liability business will also be impacted, with high inflation feeding through into bodily injury claims.”

Inflation will however lead to a “silver lining” for insurers, with rising interest rates over time supporting industry profitability by yielding higher investment returns, Swiss Re said.

Inflation will drive further rate hardening, the report noted. “We expect claims inflation to feed through into rate hardening in nonlife commercial and personal lines this year and next. … Commercial lines (including workers compensation) will continue to expand more than personal lines (including health). We estimate a 1.1% increase in commercial premiums in 2022, and a 3.1% gain in 2023, supported by rate hardening,” the report said.

It added: “Pricing in commercial lines continues to improve in 2022, albeit at a more moderate pace than last year. In 2021, the strongest rate gains were in financial and professional liability lines (+34% on average) in the U.K., the U.S. and Australia. Property rates were up in all regions (+11% on average), while casualty continued to lag (+6%).

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