Inflation-driven insurance price increases are expected to continue for “a couple of years at least,” according to Patrick Gallagher, CEO of Gallagher in an interview with the Financial Times.
Gallagher stressed that rising costs of claims required the insurance industry to raise premiums as part of a professional and proactive response to rising inflation.
The impact of rising inflation has given new momentum to the ongoing rally in insurance and reinsurance prices. Insurers have reacted to the high costs associated with rebuilding homes and repairing cars by adjusting the cost of coverage accordingly.
This trend, often referred to as a “tough market,” will continue until the full effects of inflation are absorbed into existing profits and incorporated into new business strategies, as Gallagher predicts.
He estimates that this process will take a lot of time, at least two years.
“Insurance brokers secure insurance for their clients, taking a fee or commission in the process. Gallagher, which has a market value of $45bn and employs more than 40,000 people worldwide, jumped at Willis Towers Watson last year to become the third largest broker by market capitalization, after acquiring most of the latter’s reinsurance broking business.
Gallagher specifically discussed the challenges facing the property insurance market, particularly in the United States.
Major insurers such as State Farm and Allstate recently announced the suspension of offering home insurance to new customers in California. State Farm cited historic increases in construction costs, rapidly growing catastrophe exposure, and a challenging reinsurance market as factors in their decision.
“It’s not just dollars and cents,” Gallagher said. “You have to ask [approval on] rates. Without politics, we are back to economics. Is it insurable? I don’t think so. It’s been insured for a long time.”
Gallagher attributed the exit of insurers from some markets to a combination of regulatory challenges and increased exposure. He praised Miami for taking proactive steps to pass legislation aimed at curbing rising legal costs for insurers.
Acknowledging the role of climate change, Gallagher stated that the severity of events such as the devastating forest fires in California are influenced by environmental factors.