Insurance premium income across property and casualty (P&C), life and health exceeded €5.6 trillion ($9.2 trillion) last year, representing a 4.9% rise from 2021, according to a new report from Allianz. 

While the increase demonstrates the resilience of the industry, Allianz says the “robust development” must be seen against the backdrop of rapidly rising inflation. 

In the last year alone the global inflation rate is likely to have doubled from 4.3% to 8.6% and in real terms, the picture is becoming much gloomier, the Allianz Global Insurance Report 2023 says. 

The report says inflation has a negative impact on insurance profitability, mainly through the claims channel. Inflation leads to higher claims costs, wiping out underwriting profitability as the combined ratio might exceed 100, meaning that earned premiums are lower than incurred losses and expenses. 

“The surge in inflation posed problems for insurers as the unexpected rise in prices caused claims payments to rise much more sharply than calculated, pushing the combined ratio above 100 in some segments.  

“As a result, painful additional reserving became necessary.” 

Insurers do have some levers at their disposal to mitigate the impact of inflation – pricing, product design, indexation, asset allocation and reinsurance solutions – but navigating an inflationary environment remains a challenge. 

“If the impacts on the economy and markets are considered, slowing growth, declining real incomes and investment cutbacks are weighing on new business, while price corrections and market turbulence are making investment more difficult,” the report says. 

“Thus, the big question (not only for insurers) is what happens next with prices. While the peak in inflation is certainly behind us, there are many reasons to believe that a return to the pre-pandemic and pre-war times of low inflation is not on the cards. 

The report says in the coming years, five structural drivers will determine inflation. They are the five Ds – demographics, deglobalisation, decarbonisation, digitalisation and debt. 

“Taken together, these trends have an inflationary effect,” the report says. 

Click here for the report.