Swiss Re has raised concerns about the future of the motor insurance industry. Rising claims costs, evolving mobility trends, and economic pressures are creating significant challenges for insurers. This article highlights the key issues that insurers need to address in the coming years.
Motor Insurance Faces Increasing Pressure
Motor insurance is a vital component of the $2.2 trillion global property and casualty insurance sector. However, Swiss Re’s latest report, “Shifting Gears in a Changing Landscape – A Global Perspective of Motor (Re)insurance,” shows that the industry is facing growing pressures. Rising claims costs, economic instability, and environmental challenges are among the main concerns.
Global Car Sales and the Demand for Insurance
In 2024, nearly 90 million light vehicles were sold worldwide. All these vehicles require mandatory motor insurance, which covers third-party liability and vehicle damage. Despite the decline in accident frequency, caused partly by improved vehicle safety and reduced driving during the pandemic, accident severity has been on the rise. Higher speeds and distracted driving are contributing to this increase.
Factors Driving Up Claims Costs
Rising Accident Severity
While fewer accidents occur, the severity of those that do has grown. This is partly due to faster driving speeds and increased distractions, such as mobile phone use. These factors are leading to higher repair costs, especially as vehicles become more complex and expensive to repair.
Inflation and Supply Chain Issues
The growing complexity of modern vehicles, coupled with inflation, is increasing repair and medical costs. Additionally, supply chain disruptions have led to a shortage of spare parts, which further drives up repair times and costs. These rising expenses are creating significant pressure on insurers’ financial stability.
Weather-Related Losses
Severe weather events, such as floods and hailstorms, are contributing to more frequent and costly damage to vehicles. These weather-related losses may not yet be fully accounted for in current insurance premiums, adding further uncertainty for insurers.
The Shift Towards Technological Change
Swiss Re notes that the future of motor insurance will be shaped by the technological evolution of vehicles. According to Laure Forgeron, Chief Underwriting Officer at Swiss Re, “Vehicles of the future will be more connected, autonomous, shared, and electric, and insurance must be tailored to fit this new reality.”
Challenges in the Asia-Pacific Region
The motor insurance market in the Asia-Pacific region is undergoing significant changes. According to Laurel Hu, Head of Casualty Underwriting at Swiss Re, factors like the adoption of electric vehicles (EVs), increasing technological integration, and inflation are all reshaping how insurers approach motor coverage in the region.
Impact of COVID-19 on the Market
The COVID-19 pandemic had lasting effects on motor insurance markets. Changes in driver behavior during the pandemic led to increased claims inflation. Supply chain issues, particularly the shortage of parts, have further complicated the situation. Although some markets have not yet returned to pre-pandemic driving levels, competition in motor insurance is increasing due to recent price adjustments.
The Impact of Regulatory Changes
Regulatory changes are also creating new challenges for motor insurers. In countries like India, deregulation has encouraged product innovation but also increased the risks of fraud. As insurers try to adapt to these changes, the overall profitability of the sector remains under pressure.
The Future Outlook
Despite stable claims inflation in countries like China, the motor insurance sector faces long-term challenges. The increasing frequency of natural disasters and the integration of EVs into the market are expected to continue affecting motor insurance performance. Insurers must adapt to these changes while managing rising claims costs and technological shifts in the industry.
Conclusion
Swiss Re’s report highlights the significant challenges facing the motor insurance sector. With rising claims costs, new technological trends, and regulatory shifts, insurers must remain agile. The evolving landscape requires insurers to adapt quickly and manage risks to maintain profitability in an increasingly complex market.
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