Insurance Availability and Regulation
The public needs greater certainty regarding insurance availability, and that begins with regulation that supports an adequate price for the risk, says Evan G. Greenberg, Chairman and CEO of Chubb Group, in his recent Letter to Shareholders.
Growing Natural Catastrophe Risks
Growing natural catastrophe risks are a persistent problem for society. Greenberg noted that both large and small weather events are on the rise. Additionally, the concentration of property values in catastrophe-exposed areas has been rapidly increasing for years, along with rising rebuilding costs due to regulation, standards, labor, and materials—all of which further raise the cost of cat events for society.
He stated, “The insurance industry incurred $140 billion in insured CAT losses globally last year, and it was a normal year. The cost of the new normal is increasing quickly.”
And as the cost of catastrophes increases for the industry and society, it is naturally impacting the price and availability of insurance.
Need for Adequate Regulation
Greenberg emphasised that the public needs greater certainty regarding insurance availability, which starts with regulation that supports an adequate price for the risk.
“For Chubb, we want a 15% return on capital. Without an adequate return, the private sector can’t attract the capital necessary to cover growing exposures,” he said.
Impact of Climate Change on Insurance Costs
The cost of catastrophes—and the associated cost of where people choose to live and work—is increasing. Climate change price signals are directly reflected in the increasing cost of insurance.
Greenberg stated, “When state regulators deny insurers the ability to charge an adequate price and restrict our flexibility to tailor coverage, they drive away insurance availability and foolishly suppress economic price signals, which incentivises the wrong decisions about where and how people choose to live and work. This ultimately creates a crisis.”
California Wildfires as a Case Study
For example, the recent devastating California wildfires illustrate this problem.
He explained, “The state suppressed the industry’s ability to charge a fair price for wildfire-exposed coverage. As insurers reduced their exposures and withdrew private insurance capacity, citizens were offered cheap coverage through the state’s insurer-of-last-resort FAIR plan.”
“Add the enormous time and costs associated with reconstruction post-event due to highly inflated state and local requirements as well as approval and permitting processes.”
Conclusion
Allowing insurers to charge the right price is the starting point for increasing availability and building a sustainable model, stressed the CEO.
