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Insurance buyers face an uncertain outlook over the next year. While the sharp primary rate increases of the past four years appear to have eased, prices are still rising, and general economic conditions and other market forces may preclude much further easing.
Inflation is driving up claims and repair costs for property insurers, and casualty insurers continue to cite so-called nuclear verdicts and higher settlements as reasons for liability rate hikes.
Add to the mix the disruption resulting from the war in Ukraine and the ever-present effects of climate change, and pressure to raise insurance prices is unlikely to subside.
Reinsurers meeting in Monte Carlo, Monaco, last month — yes, it is a strange place for an industry constantly fretting about costs to meet — were clear in their messaging that they plan to increase prices at year-end renewals. And that was before the first major hurricane of the season had formed in the Atlantic.
Of course, there was an element of talking up rates, but there were few contradictory voices at the meeting. If insurers pay more for their own coverage, it will only make insurance price increases more likely.
In addition, premium continues to pour into the surplus lines market. While it’s good news for buyers that they have additional sources of capacity in the nonadmitted market, it usually involves an additional cost.
All this comes while companies from all sectors face higher credit costs and the growing prospect of a recession.
While insurers need to protect their own businesses, they also need to remain relevant for their customers. Commerce can’t function without insurance, but its cost can be stifling.
It’s easy to say that technological innovation is the answer to the problem, and to some extent it has to be, but improved technology also adds another burden. As we report on page 4, innovative technologies, such as electric vehicles, create great solutions, but they can be expensive to fix or replace if things go wrong.
The technology that insurers are employing themselves is also advancing, though. While the surge in insurtech investment that started five or six years ago hit a bump this year, the market has evolved. More consideration is being given to how technology companies and existing insurers can work together to improve the insurance underwriting and buying process.
With many insurtechs realizing they need to work with incumbent insurers rather than try to push them aside, and insurers acknowledging that incremental technological change is no longer sufficient, the prospect of a more efficient insurance market looks more likely. Such developments won’t fix the problem of living in a riskier world, but they should go some way to making it more bearable.