Rising Inflation in Europe May Affect Profitability Of Insurers – GobalData

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Rising Inflation in Europe May Affect Profitability Of Insurers – GobalData

According to GlobalData, general insurers’ profitability would suffer over the next two years as a result of Europe’s rising inflation, which soared to 8.9% in July 2022, the highest level in the previous 25 years.

The analysis predicts that premium growth will be slower as policyholders’ capacity to pay greater premiums will be impacted by growing inflation. Additionally, it is anticipated that the average cost per claim will rise, which will lower general insurers’ profit margins.

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According to GlobalData’s Global Insurance Database, general insurance claim payouts in Europe are anticipated to increase by 5.1% in 2022, while premium growth will be 4.9% lower.

Rising Inflation in Europe May Affect Profitability Of Insurers: GobalData

Swarup Kumar Sahoo, Senior Insurance Analyst at GlobalData, commented, “Inflation in European countries has increased sharply since the beginning of 2021.”

“This was initially due to the prolonged economic impact of COVID-19 but has been further exacerbated by the Russia-Ukraine conflict and the resulting supply chain disruptions in 2022.”

“Following this, the price for the average claim has increased, impacting most general insurance lines, especially Property, Motor, and Specialty insurance.”

Property insurance is highly vulnerable to inflation as rebuilding and repair costs are directly linked to the cost of materials and labour.

Rising Inflation in Europe May Affect Profitability Of Insurers – GobalData

Factors such as rising raw materials prices, disruptions in supply and labour shortages are expected to shoot up the average cost of claims for both commercial and household property insurance. As a result, GlobalData expects property insurance claims to grow by 6.4% in 2022 while premiums would grow by 5.6%.

The report states motor insurance claims growth is expected to increase from 1.6% in 2021 to 4.0% in 2022, against a decline in premium growth from 6.4% in 2021 to 4.3% in 2022.

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This is due to higher replacement costs, third-party pay-outs, litigation costs, and wages, says the report. The rising cost of claims will impact insurers’ claims reserves used for paying unsettled claims from previous years.

GlobalData affirmed the burden of rising inflation and the cost of claims will prompt insurers to review their risks, leading to an increase in premiums for both new policies and renewals.

Rising Inflation in Europe May Affect Profitability Of Insurers – GobalData

Sahoo concluded, “Rising inflation and the cost-of-living crisis will not only lead to higher insurance rates and tougher conditions for the market but will also push policyholders towards underinsurance and keep general insurers’ profitability under pressure.”

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“Striking a balance between profitability, premium growth, as well as customer retention, is expected to be a key focus area for European general insurers over the next few years.”

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