Munich Re warns primary partners on ‘unprecedented’ US inflation

Munich Re is warning US primary carriers to double check the impact that inflation is having on property values, reconstruction estimates and, in turn, rates charged for primary coverage.

“My biggest concern is whether insurers are fully estimating the impacts,” the head of property at Munich Re in the US, Mike Quigley, said during the inaugural episode of a podcast series hosted by his boss,  Munich Re US CEO Marcus Winter.

Quigley considers the current inflation structure “highly unpredictable and unprecedented” clearly pointing to “the need to further increase premiums, particularly in personal lines and commercial property.”

CEO Winter sees a “big risk” that the price spike will get worse before it gets better.

Munich Re's top advice to its partners: double check property valuations and the processes used to keep them ahead of the inflationary curve.

“If you get this wrong at the outset, the premium charged for the true exposure could be woefully inadequate,” Quigley warned, citing recent cases.

The goal: “not just looking at getting yourself into a place that is caught up or current with inflation, it is also thinking about how you avoid getting yourself into that position in the future and future proofing your processes.”

Secondary paths of action: checking coverages, deductibles, margin clauses in commercial and better bird’s eye views of one’s full portfolio to see how inflation filters through. “There is no one silver bullet; it is a full menu,” Quigley said.

The current spike in reconstruction costs is built on the twin pillars of a labour shortage and supply side problems for materials. Problems with materials will last “into” 2023 and problems with labour “through” that whole year.

“Overall, when you combine the cost of materials and the shortage of skilled labour, we are experiencing increase in residential and commercial property reconstruction costs in the high single digits to mid-teens levels,” Quigley said. The impact to reinsurance costs looks "significant".

The much feared “nexus of bad nat cat year with these high inflation trends” could overwhelm some carriers, he suggested.

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