Insurance businesses witness an upsurge in profit through expanded policy purchases.
In a surprising turn of events, the insurance industry has managed to maintain its revenue despite accounting for pandemic-related claims in their 2020 financial statements [1]. This resilience is evident even among primary and reinsurers, as noted by Aon's researchers [1]. However, the projected impact of 2021's natural disasters on property and liability insurance prices is significant.
2021 was among the costliest years for insured losses due to events like wildfires, hailstorms, and flooding [1][2][4]. These disasters have contributed to ongoing underwriting losses for insurance companies, leading to a marked increase in insurance premiums.
Key factors influencing these price hikes include the increased frequency and severity of natural disasters, rising costs of reinsurance, higher construction and inflation costs, risk-based market shifts, and climate change effects [3][4].
Reinsurance, which insurers buy to protect themselves from large-scale losses, has become more expensive. For instance, there was a reported 35% rise in 2023, increasing insurers' overall costs and leading to higher premiums passed to customers [2].
Post-disaster rebuilding costs have surged due to inflation and expensive materials and labor, increasing policy replacement values and premiums [2][4]. Some insurers are exiting or limiting coverage in high-risk regions, reducing competition and pushing premiums higher for those insured in vulnerable areas [2][4].
The increasing volatility and intensity of weather-related events connected to climate change exacerbate long-term risk, driving insurers to raise rates to maintain profitability and solvency [3][4].
While the COVID-19 pandemic had minimal effect on insurance profits, the combined impact of natural disasters and climate-driven risk factors is causing home and property insurance premiums to increase markedly. For example, U.S. homeowners saw average premium increases of 24% between 2021 and 2024, more than double inflation rates [3][4].
The total cost of July's storms is estimated at 4 to 5 billion euros by the German Insurance Association (GDV) [5]. This could potentially make 2021 another year of above-average natural catastrophe losses for insurers.
In summary, the 2021 natural disaster losses are a significant contributor to the rising trend in insurance premiums, compounded by continuing climate risk, inflation, and reinsurance cost pressures, leading to higher property and liability insurance prices despite COVID-19’s limited impact on insurer profitability.
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References: [1] Aon's 2021 Market Report [2] Swiss Re Sigma No. 6/2022 [3] Berenberg Research [4] Munich Re's NatCat Service [5] German Insurance Association (GDV) [6] GDV Press Release, July 2021
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