Global reinsurer Munich Re is anticipating continued reinsurance market hardening in Europe at the January 1st, 2022 renewals, while major losses and inflation trends suggest more pricing discipline.
“Rising prices for various assets and the latest major losses make considerably higher reinsurance rates in Europe likely,” said Doris Höpke, Member of the Board of Management at Munich Re.
Parts of Europe were devastated by floods in July which resulted in overall losses of an estimated €46 billion, of which some €9 billion were covered by re/insurance protection. In Germany, the flood event became the costliest natural catastrophe in its history.
In light of the significant impacts of this event and the influence of climate change more broadly, Munich Re says that improved preventative measures and the changing climate must be taken into greater account in risk assessments.
“The major losses produced by extreme flooding in Central Europe and the rise in weather events like droughts and wildfires affect regions that, in some cases, are not characterised by risk-adequate prices and conditions. In addition, the higher inflation is accompanied by continuing low interest rates for investments. Accordingly, I see a number of indicators for prolonged market hardening when the renewals come,” said Höpke.
The reinsurer continues to highlight a spike in inflation in the eurozone, which typically leads to higher claims costs. While the firm expects inflation rates to normalise in the long-run, it does expect these to remain above the pre-pandemic level.
According to Munich Re, large loss events such as the flooding in Europe show that the role of insurance and reinsurance must go far beyond taking on risks and paying losses.
“This is how I see the future role of insurance: We want to be the central partner for comprehensive risk management, to be a resilience provider, if you will. The basis for insurance, and for risk management of any type, is to monitor and understand risks, and to subsequently develop forward-thinking solutions that can strengthen society in the long term,” said Höpke.
“And of course we want to help reduce the considerable gaps in insurance that can still be found in many industrialised countries, like insurance for flood losses in Germany. Otherwise, many people will have no way to cover their losses, or will have to hope they receive state support, even though these losses could have been insured in exchange for a suitable premium,” she added.