Swiss Re and Howden discuss strategies to manage inflation
At Intelligent Insurer’s Re/insurance Outlook Europe 2024 conference in Zurich, a panel of top re/insurers and brokers discussed the state and impact of economic and social inflation on various lines of business, and identified strategies on how to respond to a more claimant-friendly environment.
The panel featured Reto Koller, CEO of Active Reinsurance at Helvetia Swiss Insurance Company, Andrea Scascighini, head of casualty portfolio analytics and steering at Swiss Re, and Wolfram Schultz, head of casualty reinsurance for Continental Europe at Howden Re. The discussion was moderated by Darren Pain, director of evolving liability at The Geneva Association.
Pain set the stage by addressing the significant macroeconomic shocks of recent years, noting the rapid increase in inflation due to post-pandemic supply shocks, as well as energy and food price surges resulting from the war in Ukraine. He highlighted the difficulty insurers face in predicting and managing claims inflation amidst such economic volatility.
“Insurance has this additional complication of the fact that claims costs don’t always and often mirror what’s going on in consumer price inflation. There’s this big elephant in the room about claims costs on the liability side,” Pain said.
Pain described the term social inflation as “fuzzy,” explaining that it refers to legal and legislative changes that amplify the costs of claims. “We don’t really know how to measure or monitor it very effectively; we only see it indirectly through measures like nuclear verdicts in the US.
Schultz agreed that inflation is impacting claims across various lines of business but noted that each line has different triggers. “Property insurance, for instance, saw huge inflation in building costs after hurricanes. In other lines of business, like motor, we have slow inflation, which is triggered by increased cost for products, but also the rise of technology,” he explained. Schultz also mentioned service inflation, where demand and supply mismatches after specific shock events contribute to rising costs. “Service inflation is something we might need to look at, due to the fact that this is creeping up,” he added.
Koller pointed out the varying impact of inflation across different regions. “In some parts of the world, like Turkey or Argentina, inflation is a long-standing phenomenon. People have adapted to it,” unlike in Central Europe, where the recent inflation spike “came as a surprise,” he noted, emphasising the importance of adapting to inflationary trends and incorporating them into risk pricing.
Scascighini highlighted the long-term view, stating, “Inflation is going to be higher. The future is probably more risky. Managing claims is going to be more expensive at the core of insurance.”
Addressing social inflation, Pain asked whether it is a real phenomenon or “just something the insurance sector makes up,” and if it is confined to the US. Scascighini affirmed its impact with examples from the US transportation industry and motor prices in the UK.
Koller expanded on how social inflation is spreading beyond the US, driven by third-party litigation financing. He said in the US, you’ll see significant investments in third-party litigation financing, which is now starting to influence European markets as well. While different legal systems in Europe help contain the impact, we still see elements of social inflation crossing the ocean, he explained.
Schultz gave the example of class action mechanisms in Germany and other European countries, which, while different from the US system, still indicate a trend towards increased litigation.
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