Last year, I shared with Brokerslink the challenges of reinsurance after the pandemic, a period in which global inflation had not yet unfolded, and before the Russian invasion of Ukraine.
In January 2022, I estimated that the year ahead would probably not be "smooth", and this came to fruition. Although the (re)insurance markets continued to be affected by the pandemic, the global economy gradually began to return to normal. However, other challenges have emerged in the last 12 months, such as increasingly severe natural disasters.
Numbers prove it. A study by Munich Re. calculates around $270 billion in total losses and approximately $120 billion in insured losses caused by natural disasters in 2022. Hurricane Ian was responsible for more than a third of total losses and about half of insured losses worldwide.
In addition to natural disasters, which have become increasingly extreme, frequent and expensive, there are reasons for the sector to be apprehensive about medium-sized events, such as fires, storms, floods, or hail.
Another example comes from Brazil. In the first half of 2022, the crop failure due to climate problems impacted the payment of R$7.7 billion in compensation to producers, within the Subsidy for the Premium of Rural Insurance (PSR) program of the Ministry of Agriculture. The value was 353% higher than that recorded in the same period of 2021.
In addition to the terrible deaths and incalculable hardships for many families, the Russian invasion of Ukraine has influenced various diverse segments. The war brought widespread damage and shortages in various areas, including shortages in fertilizers, energy, materials, and labor, and the insurance market has clearly also been impacted by this economic turmoil.
The inflationary levels seen worldwide have caused insurance premiums to rise. For example, the increase in construction costs has led to an increase in insured amounts. There has also been an increase in the value of cars due to the high cost of production - due to a worldwide shortage of semiconductors, delivery interruptions and large increases in energy costs. All of this causes direct losses and reduced profits for consumers and the insurance market as a whole.
Since the beginning of the war, insurance policies managed by the entire market have been affected, and this also applies to MDS Brazil. The pressure for increased rates and deductibles has made it necessary for the MDS Brazil team to apply all its technical expertise and tools to support customers - many of whom are facing higher premiums at the same time as they are struggling against broader economic pressures and a decrease in demand.
Times like these require technical sophistication, creativity and strong communication with the customer to support them in having a better understanding of their risks - a process that can help reduce premium increases to a minimum. Brokers play a fundamental role in helping customers identify and evaluate their own weaknesses and prepare action plans to mitigate these risks. For example, brokers need to evaluate possible delays due to parts replacement, as well as many other problems, as long delivery times have become the norm due to the ongoing demand of the global supply chain.
The entire MDS Group team is focused on the needs of the markets it serves, to support customers in navigating these challenging times and preparing them for what is to come. As 2022, I believe this year will also be "smooth" and equally challenging, especially in Latin America, due to macroeconomic uncertainties and political instability in several countries and a possible global recession.
