Munich Re: Rising reinsurance prices expected

The most serious losses in Europe this year were in connection with the floods that struck Central Europe in mid-July. Overall losses amounted to an estimated EUR46 billion, of which over EUR9 billion were insured, according to Munich Re. In Germany, the flooding – which produced overall losses of around EUR33 billion and insured losses of at least EUR7billion – was the most expensive natural catastrophe in its history. In addition to improved preventive measures, the influence of climate change, which makes precisely this type of regional extreme rainfall more probable, has to be taken into greater account in risk assessments.

At the same time, the eurozone has seen a recent spike in inflation – well above three percent in September, and climbing to over four percent in Germany. Higher inflation also leads to higher claims costs. In the long term, the inflation rates will likely normalise again, but remain above the pre-COVID level. In contrast, interest-rate levels have remained virtually unchanged. Taken together, these two factors are producing an upward pressure when it comes to insurance prices.

The latest very large losses, including those in Europe, show that the role of insurance must extend far beyond assuming risks and compensating for losses.

Examples to be mentioned include the perennially discussed topic of compulsory flood insurance in Germany, or the potential expansion of state-supported risk pools, which would be necessary in order to cover pandemic-related business interruptions. State-supported risk pools would also be needed to combat certain systemic cyber risks, such asthose resulting from cyber warfare, since they can’t be borne by insurers alone.