Global insurance spending is expected to double in the next decade, according to John Neal, the Chief Executive of Lloyd’s of London. With a greater perception of risks such as banking failures and climate change, many experts are predicting that demand for cover could accelerate in the decade ahead. This post will look at some of the factors causing the risks and how insurers can capitalise on the growing demand.
Boom time for insurers?
Insurers are in demand in times of great uncertainty. The COVID-19 pandemic shook up insurance and had significant impacts on the industry. Future pandemics, as well as systemic risks related to climate change, are becoming more acute, alongside other high-profile risks such as bank failures.
Mr Neal’s prediction follows estimates from Lloyd’s that premiums written across the market this year should hit about £56bn, a hefty rise from £47bn in 2022. Rising prices for commercial insurance and reinsurance are pushing the bill higher.
“The purchase and penetration of insurance is going up at a rate that is likely to see insurance purchases double in the next decade, life and non-life,” he said.
Bank collapse and climate change
Following the collapse of Silicon Valley Bank in March, there has been much discussion about the impacts that further instability in the banking sector could have on insurance. Amidst the uncertainty, insurers need to be ready for any spillover effect to insurers and reinsurers.
Likewise, climate change has soared to the top of agendas in recent times. The Bank of England has sounded the alarm on the potential consequences for insurance, given the industry’s long timeframes.
Attitudes towards risk have been evolving, industry reports show, with Deloitte highlighting the unique position held by the insurance sector when it comes to climate change because the potential risks involved affect both the liability and asset sides of the insurance balance sheet. And unlike other institutions, having accrued decades of knowledge in extreme risk pooling and management, Deloitte argue that insurers are ‘both more exposed to financial risks from climate change than many other financial institutions, and uniquely positioned to manage and mitigate the catastrophic effects that climate change could have on the economy and society.’
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