Rising inflation in Europe, which jumped to 8.9% in July 2022, the highest in the last 25 years, will hurt the profitability of general insurers in 2022-24, observes GlobalData. According to the leading data and analytics company, premium growth is expected to be slower as rising inflation will impact the ability of policyholders to pay higher premiums. Furthermore, the average cost per claim is expected to increase which will reduce the profit margin of general insurers.

GlobalData’s Global Insurance Database reveals that general insurance claim pay-outs in Europe are expected to grow by 5.1% in 2022, whereas premiums will grow at lower rate of 4.9%, further indicating a negative impact on the profitability of insurers.

Swarup Kumar Sahoo, Senior Insurance Analyst at GlobalData, comments: “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. 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, property insurance claims are expected to grow by 6.4% in 2022 while premiums would grow by 5.6%.

According to GlobalData, 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. Motor insurance claims are expected to rise in 2022 due to higher replacement costs, third-party pay-outs, litigation costs, and wages. The rising cost of claims will impact insurers’ claims reserves used for paying unsettled claims from previous years.

The burden of rising inflation and cost of claims will prompt insurers to review their risks. This will lead to an increase in premium for both new policies and renewals.

Sahoo concludes: “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. 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.”