The fast-changing macroeconomic issues currently impacting the re/insurance industry are expected to cause for the hardening market to last longer than expected, according to Head of Analytics at Howden unit HX, David Flandro.
In the insurance broker’s latest review and earnings update for FY2021, Flandro, alongside Michelle To, Head of Business Intelligence, addressed how shifting macro-fundamental trends such as inflation and climate change and its effect on secondary perils are key components towards this issue continuing further.
During the presentation, Flandro said: “How long will the hardening market last? We don’t yet know the precise answer but generally at this point, and with the shifting macro fundamental trends we’ve described, I think we can say longer than expected.”
The review went into detail about the effects that climate change has had on the sector throughout 2021. Multiple losses for the sector occurred, which included droughts, crop failures, floods, heatwaves and wildfires, all of which that used to be considered as secondary or nutritional losses are now looking more like peak losses.
Because of these rising secondary losses the insured loss event count has more than doubled over the last decade with inflation and adjusted insured losses doubling on average in the last five years.
The presentation also explained how property prices have increased, and how the general trend has been away from property and into specialty and casualty lines through active risk selection. This shows changing assumptions, as well as new opportunities as the market hardens.
The review also addressed how there are multiple lines of business that have been affected by the ongoing Ukraine – Russia conflict, which includes cyber and political risk. However, there will also be ancillary effects in the marine hole and cargo markets, aviation and energy too.
Flandro said that commodities, energy and construction costs were already increasing prior to the crisis, as well as UK construction costs, which saw a rapid rise take place throughout 2021 and into 2022. In addition, high volatility in the commodities, metals, minerals and energy market from May 2020- March 2021 were also recorded.
“These were pre-existing trends that were happening prior to the crisis in Ukraine. All of this and now the crisis in Ukraine are having an effect on insurance pricing and the longevity of the cycle.”
