Insurance premiums worldwide have risen for twenty-five quarters in a row. This spans more than eight consecutive years of increases, according to the latest calculations by the insurer Marsh.
This is the longest run of gains since this company began measuring the Global Insurance Market Index composite in 2012.
Therefore, insuring yourself against the unexpected is becoming more and more expensive. It is true that the rate of increases has been softening in recent months, so this trend could be close to its end. But what has happened so that the premiums have been installed on this upward path?
The technical argument is the same as always: the accident rate has increased. New dangers have loomed on the horizon in recent years: damage resulting from climate change and cyber threats.
“Extreme weather events are more frequent and more violent,” sums up Pablo Trueba, CEO of Marsh Spain. “We see how the price of commercial insurance increased by 4% worldwide (6% in Europe) in the last quarter of 2022. This is the twenty-fifth consecutive quarter of price rises, although it is true that there is a slowdown in these increases. In fact, we have verified that, for the less aggravated activities from the insurance point of view, some stabilization is noted and quite a few contracts have been renewed under the same terms and conditions as the previous year or even with a slight decrease”, explains Trueba.
As the study indicates, pricing to insure real estate risks continues to be affected by the high level of claims in 2022, especially as a result of Hurricane Ian passing through the United States. In the last quarter alone, prices to insure properties rose 7%.
In Spain, examples of these phenomena have also been experienced, on a different scale, from the Filomena storm, the DANA or the drought, incidents covered by insurance compensation consortiums, and not by private insurers.
“Increases in premiums (industrial risks) are not only referenced by the rate increase, but also by the increase in the sums insured (global premium increases of around 30%) and by the protections that more and more insurers / reinsurers demand, reaching the point of not getting coverage in the event of minimum protections in material damage policies”, comments Francisco Cayuela, Commercial Technical Director at ML Correduría.
The reinsurer Gallagher Re has just made public its own study, in which it has estimated that insurers have spent five years in a row in which they have to cover damages above the threshold of 100,000 million due to weather. The turbulent weather cycle affects the economic cycle of the sector.
Weather events intensified by climate change caused direct global economic damage of $360 billion in 2022 alone, according to these sources. However, 60% of this figure was left out of insurance coverage.
Indeed, of these losses, private insurers covered 125,000 million, less than half, while public insurance entities contributed 15,000 million.
There is therefore a significant deficit, and in fact at the last meeting of COP27 the creation of a “loss and damage” fund for the countries most affected by extreme weather events was discussed.
To mitigate the risks, there are now parametric insurances, which are usually contracted in the agricultural, forestry or livestock sectors. Based on measurement indices, in the event that the temperatures become excessively high, or the rainfall is excessively abundant, or in the event of drought, the holder receives compensation already agreed in advance.
As for the threat of cybersecurity, a decade ago it was not as widespread or global. “The real problem is that the attacks are constantly evolving and mutating,” says Trueba. Threats run faster than solutions to avoid them. “Many companies are not aware of the risks, especially SMEs, and only realize it when they are attacked,” explains a broker. Premiums in this section, according to the Marsh index, rose 28% in the last quarter, just when computer attacks in the context of the war in Ukraine continue to intensify.
For companies, the environment is becoming increasingly insecure: not only higher premiums have to be assumed, but also possible production losses, in addition to the cost of goods that were not insured. In Callagher Re they warn: “These risks are no longer hypothetical. They are already here”.
