Inflation-driven insurance price hikes are anticipated to persist for “a couple of years at least,” according to Patrick Gallagher, CEO of Gallagher in an interview with the Financial Times.
Gallagher highlighted that rising costs of claims have necessitated the insurance industry to raise premiums as part of a professional and astute response to the surge in inflation.
The impact of increasing inflation has provided renewed momentum to the ongoing rally in insurance and reinsurance prices. Insurers are reacting to the elevated expenses involved in rebuilding homes and repairing cars by adjusting the cost of coverage accordingly.
This trend, commonly referred to as a “hard market,” will continue until the full effects of inflation are absorbed into existing profits and incorporated into new business strategies, as predicted by Gallagher.
He estimates that this process will take a considerable amount of time, at least a couple of years.
”Insurance brokers secure insurance for their clients, taking a fee or commission in the process. Gallagher, which has a market value of $45bn and employs more than 40,000 people worldwide, leapfrogged Willis Towers Watson last year to become the third biggest broker by market capitalisation, after acquiring most of the latter’s reinsurance broking business.”
Gallagher specifically mentioned the challenges faced in the property insurance market, particularly in the United States.
Major insurers such as State Farm and Allstate recently announced the suspension of offering home insurance to new customers in California. State Farm cited historical increases in construction costs, rapidly growing catastrophe exposure, and a challenging reinsurance market as reasons behind their decision.
“It isn’t all just dollars and cents,” Gallagher said. “You’ve got to go ask for [approval on] rates. If the politics aren’t there, we’re back to the economics. Is it uninsurable? I don’t think so. It’s been insured a long time.”
Gallagher attributed insurers’ exits from certain markets to a combination of regulatory challenges and heightened exposure. He applauded Miami for taking proactive measures in passing legislation aimed at controlling rising legal costs for insurers.
Acknowledging the role of climate change, Gallagher asserted that the severity of events such as devastating wildfires in California has been influenced by environmental factors.
