General insurers can expect slower premium growth in Europe over the next three years as rising inflation impacts the ability of policyholders to pay higher prices, new analysis suggests.
The forecasts by data and analytics firm GlobalData indicate that general insurance claim pay-outs in Europe will grow by 5.1% in 2022, whereas premiums will increase at a lower rate of 4.9%.
A similar trend is expected up to 2025, suggesting a negative impact on the profitability of insurers. This is in stark contrast to what was recorded in 2020, when claim pay-outs grew by just 1%, and premiums increased by 4.1%.
The analysis comes after inflation in Europe jumped to 8.9% last month, which was the highest level seen in the last 25 years.
“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,” explained Swarup Kumar Sahoo, senior insurance analyst at GlobalData.
“Following this, the price for the average claim has increased, impacting most general insurance lines, especially property, motor, and specialty insurance.”
The forecasts for growth of general insurance premiums and claims are shown below:
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, property insurance claims are expected to grow by 6.4% in 2022, with premiums growing by 5.6%.
The forecasts also suggest that motor insurance claims growth will increase from 1.6% in 2021 to 4% in 2022, against a decline in premium growth from 6.4% in 2021 to 4.3% in 2022.
GlobalData said that the rising cost of claims will impact insurers’ claims reserves used for paying unsettled claims from previous years, and that the burden of rising inflation and cost of claims will prompt insurers to review their risks.
Sahoo continued: “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 under insurance and keep general insurers' profitability under pressure.
“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.”
Image credit: iStock
Graphic credit: GlobalData
Author: Chris Seekings