Hard market to continue for at least two years, says Gallagher
The hard market could last for at least two more years, according to the chief executive of insurance broker Gallagher.
Patrick Gallagher (pictured) told the Financial Times that underwriters were acting “professionally and astutely” by increasing prices in response to inflation in the cost of claims.
He said rising inflation has given new momentum to the rally in insurance and reinsurance prices, as insurers react to increases in the cost of rebuilding homes and repairing cars by raising the cost of cover.
Gallagher, whose Chicago-based firm became the third largest broker after acquiring Willis Towers Watson's reinsurance broking business, said he expected it would take another two years for the insurance market to absorb inflation into current profits and priced into new business.
The FT said rising inflation has had a big impact on insurers’ margins, triggering profit warnings in some lines of business. Across the board, US property & casualty insurers had a $27 billion net underwriting loss last year, their worst performance since 2011.
The property insurance market, particularly in the US, “continues to be difficult”, Gallagher said, noting the withdrawals from the California home insurance market by big insurers like Allstate and State Farm, blaming historic increases in construction costs, "rapidly growing catastrophe exposure, and a challenging reinsurance market”.
Gallagher pointed out to the FT that many US states such as California require insurers to get sign off from the regulator for their insurance rates.
“It isn’t all just dollars and cents,” Gallagher said. “You’ve got to go ask for [approval on] rates. If the politics aren’t there, we’re back to the economics. Is it uninsurable? I don’t think so. It’s been insured a long time.”Hard market to continue for at least two years, says Gallagher
A combination of the regulatory challenges and rising exposure was behind the insurers’ exits, he said. He called on other states to follow the example of Miami, which has brought forward legislation that can keep down rising legal costs for insurers.
“And of course climate change plays a role,” he added. “Of course fires are worse than they were — some of those terrible fires that have happened in California, that’s climate change.”