Expect ‘considerably’ higher rates and prolonged market hardening, says Munich Re
Analysts at the world's second largest reinsurer Munich Re have forecasted prolonged market hardening and “considerably” higher reinsurance rates in Europe at the January 2022 renewals as major losses and spike in inflation indicate more pricing discipline.
Doris Höpke (pictured), member of the board of management, said: “Rising prices for various assets and the latest major losses make considerably higher reinsurance rates in Europe likely. The major losses produced by extreme flooding in Central Europe and the rise in weather events like droughts and wildfires affect regions that, in some cases, are not characterised by risk-adequate prices and conditions.
“In addition, the higher inflation is accompanied by continuing low interest rates for investments. Accordingly, I see a number of indicators for prolonged market hardening when the renewals come.”
The most serious losses in Europe this year were in connection with the floods that struck Central Europe in mid-July. Overall losses amounted to an estimated €46 billion, of which over €9 billion were insured. In Germany, the flooding was the most expensive natural catastrophe in its history.
In light of these significant losses in Europe, Munich Re said that in addition to improved preventive measures, the influence of climate change has to be taken into greater account in risk assessments.
The reinsurer also highlighted that the eurozone has seen a recent spike in inflation, which is expected to remain above the pre-COVID level, leading to higher claims costs.
These two factors “are producing an upward pressure when it comes to insurance prices,” said Munich Re.
The reinsurer noted that given the significant impacts of climate change, pandemic and increasing cyber attacks, the role of insurance must extend far beyond assuming risks and compensating for losses.
“This is how I see the future role of insurance: We want to be the central partner for comprehensive risk management, to be a resilience provider, if you will. The basis for insurance, and for risk management of any type, is to monitor and understand risks, and to subsequently develop forward-thinking solutions that can strengthen society in the long term. And of course we want to help reduce the considerable gaps in insurance that can still be found in many industrialised countries, like insurance for flood losses in Germany. Otherwise, many people will have no way to cover their losses, or will have to hope they receive state support, even though these losses could have been insured in exchange for a suitable premium,” concluded Höpke.
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