State of the insurance market 2022

Maintaining pricing improvements, technology, consolidation and concern about cyber risks and climate change are continuing themes. Low interest rates and the threat of inflation will focus attention on underwriting discipline. Observers consider these key drivers for the insurance market in 2022. Geopolitical risks would almost certainly be among them if the reports were written now.

Fitch expects pricing conditions in the London market to remain favourable in 2022, with a focus on underwriting discipline. Rate increases had accelerated in the first half of 2021, ahead of market expectations, with some insurers reporting rises across underwriting portfolios.

In its London Insurance Market Dashboard 2022, Fitch comments that concerns over inflation, elevated catastrophe activity and worsening experience on the cyber book as a result of ransomware claims are the key drivers behind rate increases. Other challenges include inflationary pressure and lower investment yields.

This report says that many London market insurers are beginning to increase catastrophe exposures as a result of hardening rates, but it comments that climate change is having a significant impact on weather patterns. Losses could be higher than expected if catastrophe models do not accurately capture more severe and frequent weather events.  

Resilience will be the overarching theme for 2022, according to the Insurance Industry Forecast 2022 from Kennedys solicitors. Although 2021 necessitated a pace of change that may have been faster than ideal, insurers will want to continue to protect their operations, market and promote customer retention by adapting.

Customer demand for more interactive and efficient digital platforms and products is set to continue, which will require insurers’ adoption of new technologies, says Kennedys. That is likely to bring associated cyber risks. “However, digital transformation remains essential for insurers wanting to stay relevant, competitive and reputationally sound in the current market.”

Increased examination of insurers’ own ESG commitments will be a priority for firms as they see how moving from voluntary to mandatory disclosure requirements plays out.  Warns Kennedys, “Notwithstanding the shifting regulatory landscape, insurers – like most companies – know that it is probably only a matter of time before regulators or the general public discover any discrepancies in ESG promises, putting reputations at risk.”

Solicitors Clyde & Co predict that digital disruption through investment in technology will ramp up with an impact on every aspect of insurers’ operations. The firm’s 2022 Global Insurance Outlook says that M&A deals involving insurtechs will accelerate to new levels in 2022. These transactions will include acquisitions of insurtechs by larger, existing players in the insurance industry. Insurers are increasingly seeing acquisitions of insurtechs as an attractive way to bring in-house new technologies, businesses and expertise. At the same time, we can expect to see insurtechs as purchasers or merger partners with other insurtechs.

Insurers have shown that they can undertake large-scale change faster than many industry veterans thought possible, according to the EY Global Insurance Outlook 2022. The report says that, yes, macroeconomic and structural challenges — low interest rates and now inflation — remain daunting. Competition is also fierce, particularly from non-traditional players and, potentially, big tech. Significant disruptions such as epic storms, pandemic outbreaks, geopolitical strife and social unrest must be factored into short and long term strategy.

EY believes, however, that these factors demonstrate why the insurance industry is essential to foster global economic health and to protect what people value most. “They also highlight why there has never been a better or more interesting time to be in insurance. The risk-reward equation is uniquely compelling. The decisions and actions leaders take today can meaningfully influence the future of the industry — and the lives and livelihoods of billions of people around the globe.”