‘Impossible’ to get inflation exactly right, delegates hear

“Inflation is ok if it is predictable but the issue for insurers is the complexity,” delegates heard at the Intelligent Insurer’s Re/insurance Outlook Europe 2023, in Zurich (June 19 and 20).

This was the view of Joerg Bruniecki, CUO EMEA, MS Reinsurance, speaking on a panel of senior industry executives in a session titled ‘Increase oversight and monitoring of the long-term impact of inflation on casualty claims’.

He and his fellow panellists Reto Koller, CEO Active Reinsurance, Helvetia Swiss Insurance Company, and Penny Seach, group chief underwriting officer, Zurich, were discussing the impact of inflation on reserves, especially for long tail and legacy claims, as well as how to improve oversight of reserve performance to reduce additional exposures.

Bruniecki explained that reinsurers tackle the complexity of inflation by being rigorous in their processes. But he flagged up the importance of using the right indices to measure inflation for different lines of business.

He highlighted the spike in motor insurance losses very early on when inflation started rising, and said that this was linked to the disruption in value chains and supply chains, which affected spare parts. “So if you just look at the consumer price index you won’t get the right answer,” he said. “If you look at personal lines, there it is much more wage index driven.”

To manage these different “pots” of inflation, he said that MS Reinsurance had created different “baskets of indices” that it monitored on a quarterly basis and assessed what that meant for the portfolio.

He added: “It’s about rigour. But no one has a crystal ball, so one thing is for certain, getting it completely right is impossible.”

Bruniecki said that the best scenario is to stay on top of things and react to them.

“That means getting the right data, the right retention, being really good at execution, and being prudent in how you reserve, which will save the company.

“It sounds easy but it’s about how you build this into the system. To have a corporation focus on execution in the right way is a complex challenge.”

Koller said the selection of the cedant is key to dealing with inflation as reinsurers are one step behind them. “So, [look at] how they are dealing with underwriting and approaching the claims side. We are here to follow what you [insurers] are doing so selecting a cedant is becoming more critical. The question isn’t just can we select the right lines of business, but can we select the right cedants.

Zurich’s Seach warned that there was “denial” around some of the social inflation issues in the US and Europe.

She referenced a recent award for a fatality that settled at $26 million. “Even for me, I was looking at this settlement and thinking ‘you’ve got this wrong’. I can only imagine that for our clients who have no exposure to the US it’s a shock to the system.”

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