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Near and far: reinsurer examines coming changes

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Swiss Re has taken a look to the end of the year, and two decades further ahead, as current trends herald changes that will transform the industry into the future.

The shorter-term outlook comes as the annual Rendez-Vous de Septembre, normally held in Monte Carlo, moves online for a second year in a row with COVID-19 impacts continuing, economic recovery still a dominant issue and the US cleaning up after Hurricane Ida.

Swiss Re says non-life premiums will be 10% above pre COVID-19 levels by the end of this year, reaching $US6.9 trillion ($9.4 trillion), and that they will surpass $US7 trillion ($9.5 trillion) for the first time next year.

Real premium growth is forecast to accelerate from 1.5% last year to 2.8% this year and increase to 3.7% next year, while insurance demand is reflecting a recognition that claims frequency and severity is rising, as demonstrated by recent natural catastrophes and cyber incidents.

Swiss Re says experience this year is illustrative of a rising losses trend from secondary perils, which include wildfires, hail, and certain storms and floods.

Large global losses have resulted from Winter Storm Uri, which hit the US in February, floods in China and the storms and floods that swept Europe in June and July.

Climate change poses the single biggest long-term threat to the global economy with such events set to increase, the insurer says, while also driving a major change in the nature of the property and casualty market.

A Swiss Re Institute Sigma global property and casualty (P&C) market study looking ahead to 2040 finds technology and climate change influences will shift the premium pool balance, leading to motor’s share declining while property is on the rise.

Global P&C premiums are expected to more than double to $US4.3 trillion ($5.8 trillion) in the next two decades, and property will triple to $US1.3 trillion ($1.8 trillion) driven by economic growth and climate impacts, while urbanisation also plays a role.

The share of weather-related catastrophe impacts on the property risk pool is expected to increase around 50%, generating up to $US183 billion ($249 billion) in additional premium by 2040.

Swiss Re Chief Economist Jerome Haegeli says a shift away from motor and toward catastrophe-influenced property risk means more risk in the system and greater complexity.

“It will be much more complex, because motor is much easier to price,” he tells insuranceNEWS.com.au. “On the other hand, handling the complexity with how to price the climate risk affecting property will be much more challenging, especially with all we know about the tipping points of climate.”

Swiss Re’s report includes a call for action, stressing that the insurance industry and governments need to work together, with both sides playing critical roles reflective of their capabilities.

“Our contribution here with this Swiss Re report is to quantify the risk so that we can anticipate and better understand the risk, and anticipating and understanding risk is really at the core of the insurance value proposition,” Dr Haegeli says.

Economic development remains the key driver of premium growth when looking across all lines of business over the next 20 years, but climate change risks could slow the expansion, as well as having a direct impact on property insurance.

Swiss Re calls for more policy action on carbon pricing, promotion of pre-disaster loss mitigation and increased investment in infrastructure that will reduce emissions, in addition to projects that boost resilience at the time of catastrophes.

Dr Haegeli also warns the economic rebound following COVID-driven recessions over the past 18 months should not be mistaken for a more fundamental structural recovery.

“It is super important that today’s economic rebound is accompanied by a sustainable recovery and also a sustainable insurance system,” he says. “A real recovery definitely remains a marathon and not a sprint.”

The second online Reinsurance Rendezvous comes after year-ago expectations that the event would return this September to its traditional format in Monaco. Instead, many countries are battling the impacts of ongoing Delta variant outbreaks as the pandemic remains far from over and vaccines are rolled out.

“Declaring victory too early against COVID-19 is the biggest short-term risk,” Dr Haegeli says.

“However, the number one risk longer-term, is not being ready in terms of the underlying risks that are in the system, and the number one risk in the system is climate change.”

Swiss Re points to the positives in the outlooks for the near-term and further ahead. Insurance is more important than ever and skills assessing risk will be increasingly valued as complexity is expected to rise.