Ukraine fallout will extend long rally in commercial insurance prices

The economic fallout from Russia’s war in Ukraine will provide fresh impetus to a multiyear rally in the price of commercial insurance cover, industry experts have warned.

The global price of commercial insurance rose by 11 per cent year on year in the first quarter of 2022 — the 18th consecutive quarterly rise — further squeezing corporate finances, according to the latest data from insurance broker Marsh.

The yearly hikes in premiums have been slowing down since the end of 2020, raising hopes among companies that what is known in the industry as a “hard market” — a sustained period of rising insurance prices — might be coming to an end. But the impact of the Ukraine crisis could give it a new lease of life, experts say.

“It’s not a pretty picture,” said Stephen Catlin, a veteran of the London insurance market and chief executive of specialist insurer and reinsurer Convex.

The sector is braced for billions of dollars of payouts in areas such as aviation, political and credit cover as a result of the war, subsequent sanctions and their knock-on effects. The conflict is also adding fuel to inflation, driving up the cost of the claims insurers pay out in other areas such as commercial property.

Catlin said he thought global price rises could speed up again as a result of a combination of these factors and as insurers priced policies to reflect the expectation of higher costs in future.

“This is not about filling your boots [as an insurer],” he said, adding that it was a question of how to stay in business.

David Flandro, head of analytics at insurance broker Howden, said a mixture of inflation, claims relating to the conflict and a heightened perception of risk among companies would all put upward pressure on prices for commercial cover. “All of those factors can coalesce to create a longer ‘hard market’ than would have been the case otherwise,” he said.

Julia Graham, chief executive of Airmic, a body which represents corporate insurance buyers, said the economic damage from a lasting conflict would feed through to a “continuation of tough times for customers who had hoped for easing in the negative pressure on their insurance covers”.

She thinks that will make large businesses more likely to self-insure more of their risks by setting up what are known as “captive” insurance companies, created within a group, to provide certain coverage if traditional insurance becomes too expensive.

Christopher Lang, Marsh’s global placement leader for US and Canada, said the broker did not think “the impact of the conflict will change the current trend of rate moderation” in prices, but added that inflation in payouts for areas such as commercial property could lead to an “elongation” of the trend.

However, Bruce Hepburn, chief executive at Mactavish, which advises companies on their insurance arrangements, said they could now see an era of rising prices “that runs for five or six years, which has not happened in the memory of any corporate executive”.

By disrupting supply chains and whole sectors, the Covid-19 pandemic had “turbocharged” the rise in commercial insurance prices, he said. Areas such as professional liability and cyber have also seen sharp increases on the back of growing payouts.

Hepburn predicted that the effects of the Ukraine crisis would push up prices even further. “I expect it will do massive reputational damage to brokers and insurers and the relationships with policyholders,” he said.