Disinflation, deglobalisation and decarbonization – key themes for 2024

‘Risks on the rise as headwinds blow stronger’ – three specialists from the global reinsurance giant Swiss Re came together to provide contextualisation of the Swiss Re Institute’s report into the Global Economic & Insurance Outlook of 2024/2025.

Swiss Re’s group chief economist, Jerome Haegeli (pictured) noted that the reinsurer is expecting the global economy to cool down quite noticeably with major economies diverging as the US continues to grow, while Europe is stagnating and China is grappling with structural domestic growth challenges.

“On the insurance front, we do expect that the firm markets and the drivers which have been supporting insurance market prices, and also insurance market premiums, will remain intact,” he said. “In other words, the macros regime shifts that we have been seeing over the last few years, especially with the higher rates, they are here to stay.”

What’s underpinning the key themes impacting the insurance market?

One letter is dominating discourse about the economic and insurance market outlook – D – representing disinflation, deglobalisation, and decarbonisation. Haegeli noted that disinflation, which means that economic prices are coming down, should not be confused with deflation which means negative price changes.

Disinflation is a positive driver for insurance markets and the industry, he said, but also for the purchasing power of economies and households at large. However, he noted that the price shocks that markets have been seeing – not just due to the war in Europe and the COVID crisis but also imbalances in the economy seen pre-COVID – are here to stay.

Deglobalisation – or perhaps more accurately re-globalisation – is a second key structural theme, he said, that is not just the outcome of geopolitical risks but also the result of the drive for more efficient and effective supply chain management. With further shifts in trade patterns expected to continue, these will impact how the wider sector thinks about insurance market pricing cycles and new risks.

Decarbonisation, Haegeli emphasized, points to the need to limit the negative effects of climate change. However, he said, the ‘greening of economies’ doesn’t just present risks and challenges, but also huge opportunities. Research from the Swiss Re Institute estimates the amount of capital coming on board globally to decarbonise and green economies over the next 20-to-30 years at almost $300 billion, in addition to the capital available today.

“This is a huge transformation mechanism,” he said. “And if I think about the role we can play as long-term investors but also in de-risking and supporting the adjustment to climate change – I think there’s a lot of opportunities we can provide here.”

What’s happening in the specialty lines insurance market?

Anne Lohbeck, chief underwriting officer of specialty at Swiss Re, underlined the impact of disinflation on specialty lines of business. She noted that there has been a lot of discussion about what inflation has meant in terms of claims load and claims pressure in the past few years. For example, she said, the cost of spare parts, the availability of labour to do repairs and rebuilding costs in general have all gone up.

“Of course, if we look at the reinsurance side of things, we’ve got mechanisms to deal with inflation such as index clauses, such as pegging the sums insured to the current value,” she said. “And then there’s the timing question in terms of inflationary pressures, and how and when do they earn through the actual policy duration.

“I think one interesting little feature… is environmental inflation. That’s the higher costs associated with higher environmental standards and that is something that has been important in specialty lines and is continuing to cause pressure on claims notes.”

What’s impacting the life & health insurance sector?

Adding a life & health perspective to the conversation, Julien Descombes, chief underwriting officer of life & health reinsurance at Swiss Re, highlighted that the life savings market is being impacted by several positive trends including the high interest-rate environment and how, in general, the middle class is growing across the globe.

“[As a result], we forecast for the next decade, a higher growth than what we have seen in the past 20 years,” he said. “What is interesting… is that we have two different stories. For the North American or Western European markets, they will be below this 2% of forecast growth. But the emerging markets will grow at a much faster or higher rate.”