The impact on non-life carriers

Non-life insurers are already adjusting strategies to offset higher claims costs and expanding climate risk. As inflation stabilizes, more predictable claims cycles and improved returns on interest-rate-sensitive investments are expected to enhance profitability. Higher premiums may provide some relief, but could result in lower customer satisfaction, loyalty and trust.

The maintenance of reserves has become more important due to sustained shocks from high inflation and sluggish economic growth. Given the volatility, regulators are keeping a close eye on reserves; despite ample buffers, the pace of reserve releases has decelerated, influenced by delayed settlements and other uncertainties. As inflation shifts from

goods to services, liability exposures across the industry could be affected.

The impact on life carriers

The cycle of interest-rate hikes, along with rising wages in advanced markets, is contributing to growth and profitability. Opportunities for annuity businesses and for pension risk transfer deals are on the rise, thanks to higher rates, elevated crediting rates and funding ratios.

However, the low-growth and high-inflation environment presents threats to profitability. Credit downgrades can influence solvency requirements and escalate unrealized losses. Elevated risks of lapses and surrenders could necessitate asset sales and trigger capital losses to meet redemption demands. Presently, both credit-related and lapse-related risks appear

to be contained. Here again, scenario modeling that accounts for the unexpected would be useful.

After decades of stagnation — due to the focus on managing earnings from back books during a period of low interest rates and stringent regulations

— rising rates can provide relief and spur growth. But demand will be tempered by cost of living issues and the cost of insurance solutions versus those provided by asset managers.

The value of trust in a time of turbulence

A dynamic market presents insurers with many opportunities and incentives to build trust through transparency, personalization and stronger value propositions. Trust should be the foundation of the insurance sector, the bedrock of all relationships and the core of every interaction, communication and policy. In that sense, trustworthiness must be an active cultural attribute that guides product development, the

automation of customer-facing processes, the evaluation and selection of ecosystem partners and the adoption of enabling technologies.

Certainly, high degrees of trust are a hallmark of the world’s top insurance brands. The greater the trust insurers gain, the more they stand to benefit in terms of a larger and more loyal client base, increased profitability and more productive relationships with partners and regulators.

Conversely, those firms that don’t improve on today’s historically low levels of customer trust will be vulnerable to rising competition from outside the industry, including firms from the technology, automotive, retail, consumer goods and banking sectors. An insurance industry

that lacks trust will struggle to build strong customer relationships or grow its market share.