Moody style published a report highlighting that European P&C insurers are facing increasing structural, rather than cyclical, vulnerability to weather events.
This change in the situation is due to a significant reduction in the availability of insurance and an increase in costs, which forces the primary insurers to take on a greater proportion of weather-related claims.
In 2023, the frequency and severity of weather events such as floods, hail and fires have caused significant losses to the wallets of European P&C insurers. The reduction in available insurance reimbursements has exacerbated this problem, as insurers have increased prices in addition to reducing the supply of insurance.
As a result, primary insurers have to bear more risk, leading to a significant increase in their aggregated risk.
Looking to 2024, Moody’s highlights how challenging the reinsurance market is. Despite the cyclical nature of the market, and prices may rise in 2024, Moody’s does not expect the respondents to review the level of secondary risk insurance back to the situation before 2023, thus forcing those who -responsible for covering key exposures and air events.
By default, primary insurers need to increase insurance premiums to stem the rise in weather-related claims. However, transferring these funds to consumers is a bit complicated due to recent price increases.
In addition, Moody’s explains that accurately assessing the costs associated with climate-related claims has become more challenging, as shown by the unexpected cost of the storm that hit Italy in 2023. For insurers, one alternative is to exclude or limit coverage for certain risks, but this can lead to public pressure and even possible government subsidies.
Finally, the Moody’s report argues that the increasing vulnerability of European P&C insurers to extreme weather events is a serious problem from a long-term perspective, “and the sector must address these issues in time by identifying new risk management and pricing strategies to maintain profitability despite climate change.”