Property/casualty insurance to become 'riskier and more complex', warns Swiss Re

The global property and casualty (P&C) insurance is expected to see a significant shift from lower-risk, high-volume motor insurance to catastrophe-exposed property lines, making the sector even "riskier and more complex", according to  Swiss Re.

Swiss Re Institute's report finds that more volatile property and liability segments are gaining in significance. Motor and property risks are projected to more than double over the next 20 years.

Property insurance is forecast to become the fastest growing line of business, with premiums set to almost triple to $1.3 trillion in 2040 from $450 billion in 2020, driven by effects of economic development and climate change. Motor, although its share is shrinking, is expected to remain the largest of all P&C lines, with premiums forecast to almost double to up to $1.4 trillion by 2040.

Overall, the global P&C premiums are expected to more than double to $4.3 trillion in 2040 from $1.8 trillion in 2020, according to Swiss Re’s sigma study.

Economic development will remain the key driver, contributing 75 percent, while climate-related risks will result in a 22 percent increase in global property premiums. Swiss Re warned that over the next 20 years weather-related catastrophes will likely become both more intense and frequent.

In the motor line of business, traditionally a lower-risk and high-volume mainstay segment of P&C, the safety improvements from automation and smart technology and a drop in associated claims will lead its share to shrink to 32 percent of sector premiums by 2040 from 42 percent in 2020. However, motor will still be the largest line of business.

Additionally, liability premiums are forecast to grow by 4.7 percent per year on average to $583 billion until 2040 from $214 billion in 2020, due to climate change effects, artificial intelligence, and social and legal changes. Swiss Re noted that social inflation is expected to drive up the frequency of large verdicts and settlements, especially in the US.

Gianfranco Lot (pictured), head globals reinsurance at Swiss Re, said: “With the global portfolio shifting from lower risk motor insurance to higher risk lines, P&C insurance business will become more volatile. At the same time, risk modelling will become more complex, which will lead to higher capital requirements and an increased demand for reinsurance. In this fundamentally different risk environment, reinsurers will play a crucial role in keeping risks insurable."

Jerome Haegeli, Swiss Re’s group chief economist, stated: "Promoting the conditions for long-term sustainable growth is particularly important in the face of climate change, which poses the biggest long-term threat to the global economy. If we are to build a sustainable insurance system that allows society to manage and absorb future risks, we need to make risks and opportunities quantifiable. Our work is also vital for policy makers with whom we share the aim of making economic growth insurable."

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