Insurance is likely to become more expensive again. In addition to inflation, the increased costs caused by natural disasters are also significant price drivers. One area is particularly badly affected.
Insurers and brokers must once again prepare for demands for higher prices when negotiating contracts with reinsurers. The industry will meet in Baden-Baden from Sunday to usher in the renewal round for Germany and Europe. The world’s largest reinsurer Munich Re wants to take inflation into account as a “significant factor” in the upcoming price negotiations with primary insurers, as the company announced. A second price driver is natural disasters.
“So that we can fulfill our role as a risk carrier in the long term, we work with our customers to adapt prices and conditions to the changing risk environment,” said Munich Re board member Clarisse Kopff today: “We still have an appetite” – but only if the prices were right.
There will be no across-the-board increases, but inflation and the frequency of severe storms in Europe will have to be reflected in the prices. Increasing attention is also being paid to unrest like the one in July in France, which, according to Munich Re estimates, caused economic damage of 1.1 billion euros.
Additional requirement of five billion euros
The industry’s number two, Swiss Re, also expressed a similar opinion to the world’s largest reinsurer. The Swiss are estimating inflation in the euro zone at 2.6 percent next year, and the Munich Re even estimates it at three percent. The demand for reinsurance protection is increasing in view of the increasing and severe natural disasters, but also the threat of social unrest and growing cyber attacks.
Swiss Re expects an additional need of four to five billion euros for natural catastrophe cover in Europe, Africa and the Middle East alone in 2024, one billion of which will be in Germany. Munich Re manager Kopff referred to “an unprecedented series of individual natural catastrophe losses exceeding the billion mark” in Europe this year – from the earthquake in Turkey to the floods in Italy. But the trend is manageable.
Car insurance burdens
Inflation in motor vehicle insurance is unpleasant for the entire insurance industry. According to an estimate published in the summer by the General Association of the German Insurance Industry, companies’ expenses for administration, sales, car repairs and other damages are expected to be around 2.5 billion euros higher than their income this year.
In addition to general inflation, primary insurers and reinsurers would also have to take into account “segment-specific inflation factors” such as higher prices for spare parts, Munich Re indicated the expected price increases.
Cyberwar is not insurable
Since the wave of hacker attacks does not subside, Munich Re also expects further rapid growth in the cyber insurance business. “We estimate the European cyber market to be worth 2.3 billion US dollars in 2022. We expect a market volume of around 8 billion by 2027,” said Germany boss Claudia Hasse.
“In our opinion, most risks are insurable,” emphasized Hasse. But the Munich-based company doesn’t want to take on excessive – or unaffordable – risks: “The failure of critical infrastructure, such as a failure of the Internet, and cyber war cannot be insured.”
Insurance underwriter
Reinsurers, primary insurers and brokers from the industry will meet in Baden-Baden on Sunday to negotiate the conditions for the coming year. Primary insurers such as Allianz or Generali take out insurance policies in order to be prepared for unexpectedly high losses. Munich Re and other reinsurers take over this business.
Consumers do not directly feel price increases in the reinsurance business, but primary insurers naturally strive to pass on higher costs to customers.