“Even in the face of a challenging economic environment, insurance remains a vibrant, resilient and growing industry – and reaching the $7 trillion mark for global premiums is a major milestone,” said Swiss Re’s group chief economist Jerome Haegeli. “However, these are not easy times, and the insurance industry will need to keep a close eye on inflation. As the world gets more expensive, so do the costs of accidents and natural catastrophes, and this makes claims more expensive.”
The global economy’s sharp decline, coupled with a decades-high inflation, will weigh on total premium growth, Switzerland Re warned, resulting in a below-average 1.2% annual average growth in real terms over 2022 and 2023. It will increase claim costs for non-life insurance, with profitability pressure rising most in lines where supply shortages are leading to price increases on top of overall inflation, such as property and motor. High wage and healthcare inflation is also pushing up the cost of claims for casualty and health insurance.
There is a silver lining, however. “As central banks take action to combat inflation, higher interest rates will support insurers’ profitability in the medium term,” Haegeli said.
Rising claim costs will extend rate hardening, in effect restoring underwriting profitability and paving the way for real premium growth in 2023.
Life premiums are forecast to increase by 4.8% in nominal terms in 2022 and reach $3.1 trillion by year-end. Although this equates to a 0.2% contraction in inflation-adjusted terms, they will return to growth in 2023. Heightened risk awareness, demand for protection-type products post pandemic, and a subsidizing volume in COVID-19-related claims will support improved profitability in life insurance.
Non-life premiums will rise by 7.1% in nominal terms in 2022 – a 0.8% growth accounting for inflation – reaching $4.1 trillion by year-end. Swiss Re forecast