However, the firm says that claims growth will ease slightly alongside a moderation in inflation.
The report echoes that published late 2022 by Fitch, which stated that the insurance sector outlooks in several European markets including non-life could move to “deteriorating” if high inflation and rising interest rates increase beyond predictions.
In November 2022, Jérôme Haegeli, Swiss Re Group Chief Economist also stated: “In our view, the global economy will cool down noticeably under the weight of inflation and interest rate shocks. The repricing of risk in the real economy and financial markets is actually healthy and a long-term positive. Higher risk-free rates should mean higher returns for investing into the real economy. During today’s challenging times – and for the economic recovery period ahead – the insurance industry can show its value as it provides financial resilience at all levels of the community.”
Swiss Re predicts headline inflation to decrease but maintain its elevated level in 2023, and this will in part, relieve the intense pressure faced by insurers on claims compared to 2022.
But the insurer concedes that cost inflation in certain prices of labour and healthcare, among others, could stay high, with liability motor suffering as additional factors such as social inflation and more frequent traffic accidents form the basis of claims.
In a new claims environment report issued by the insurer, Swiss Re said: “This environment will require P&C insurers to consider continuing underwriting discipline in 2023.”
High impact for P&C and Property insurers
Experts also noted that high inflation has been costly for P&C insurers, and predicts that inflation will be responsible for an increase in claims costs of between 5% and 7.5% for the P&C sector, across the main five markets in 2023.
According to Swiss Re, property, which is immediately sensitive to inflation impacts and rising construction costs, is likely to see a 6% to 13% increase over two years, which is higher than the 5% to 8% range of registered price increases.
The statement issued with the report, says: “We expect P&C claims growth to ease in 2023 alongside moderation in inflation,” analysts wrote. “Coupled with a repricing in loss-making areas during recent primary market renewals, this may alleviate some of last year’s underwriting pressure.
“Still, insurers will need to maintain discipline in pricing, and terms and conditions, as we forecast inflation to continue to impact many claims-relevant price categories, such as labour and medical costs. Prices in these areas typically grow more slowly than in other segments, and they remain elevated.”
Swiss Re predicts a combined ratio of around 98% for the sector in 2023, which would be close to the pre-COVID 2019 level of 97.7% as a result of rising inflation.
Expectations in 2023 for inflation impacts
Other factors to consider for 2023 include the continued high prices seen in the construction industry – which peaked in 2022.
China has also reopened its manufacturing channels following a slump in production over enforced lockdown periods. This will, say Swiss Re, increase global demand for commodities. The report also states that prices in the auto repair market will stabalise, but will still remain above 2019 levels.
The report concluded: “Signals for a market correction had been mounting long before the inflation-driven rise in claims 2022. The underlying claims drivers indicate that higher primary insurance rates are likely. Sustained insurance underwriting discipline will be needed in 2023 to help improve underwriting results.”
