According to a report from the global advisory, broking and solutions company, WTW, both the energy and the insurance industries have a lot to be apprehensive about heading into the January renewals, as global geopolitical and economic uncertainties continue to intensify.
A number of factors have contributed to this new “apprehensive equilibrium”, says WTW, including the Ukraine crisis, global inflation, a renewed focus on ESG, and the deterioration of the 2022 loss record, particularly for Midstream and Downstream business.
The report states that traditionally, a period of significant market hardening is rapidly followed by an increased appetite for business at the new, higher rates, in turn ushering in the next phase of the market cycle, an equally rapid market softening as market imperatives switch from technical rating adequacy to meeting increased premium income targets.
Though now instead, “We are left with the remnants of a hard market – a tapering off of the hardening dynamic but no sign yet of the softening that many by now had anticipated,” WTW notes.
The rise of global inflation doesn’t only hit the business or its clients, says WTW, it also has the potential to impact the insurance market.
The firm observes that it is difficult to fully assess the impact of higher inflation on claims at this stage, as the higher inflation environment has not been present for long enough to accurately measure this.
Though it adds, “logic suggests that this will inevitably feed through to higher claims costs in the long term. The concern is therefore being felt by many insurers, who are also looking more closely at property declared values. This includes business interruption, the impact of more volatile Energy markets and whether the positive impact of inflation on buyers’ profits is being fully reflected in the values declared to the insurance market.”
“Our message to the energy industry on this topic is therefore really quite simple: it is vital that a more transparent understanding of how insured values are calculated is communicated from buyer to broker to insurer.”
When this is achieved, buyers will see greater price stability, says WTW, which will in turn reduce the likelihood of large swings experienced between hard and soft market conditions.
