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Insurance and reinsurance companies raising prices have sent a “strong signal” to policymakers to limit the risks of new construction projects, Hiscox’s chief executive has said, amid growing concerns about its insurability.
The cost of insuring and reinsurance against natural disasters such as fires and floods has soared in recent years as the industry responded to four consecutive years of global claims topping $100 billion.
The recession, due to higher premiums and more restrictive terms and conditions, has made it much more difficult to obtain affordable insurance coverage in some U.S. states.
“Ultimately what you are trying to do with pricing is signal a change in behavior,” Aki Hussain told the Financial Times.
Hiscox, a London-listed insurance company, is one of the largest issuers of disaster protection policies, both through insurance and reinsurance, primarily in the United States.
“If you’re going to build on flood plains, it could be problematic to get flood insurance,” Hussain said. He said insurers and reinsurers were “absolutely there” to pool risk between communities, but only if there was some risk management.
“The only way we can really signal it – we can lobby, we can have conversations – but the strongest signal is ultimately through pricing.”
Insurance company executives have increasingly called for rule changes that would bar construction in flood plains and wildfire-prone areas, or at least strengthen building codes.
The outgoing head of the UK’s flood reinsurance programme last month called on the Labour government to ensure they were not “doing the [flooding] problem will “get worse” through their plans to build 1.5 million new homes in England.
In the U.S., executives have pushed for other changes, such as legal reform to curb skyrocketing claims costs. Recent such reforms in Florida have buoyed reinsurance supply, analysts say.
“We believe it is an insurable and reinsurable risk, but it is evolving. Climate change is having a definitive impact in a number of ways,” Hussain added, such as windstorms that tend to be wetter and move more slowly. Once a hurricane has “made landfall, the flood damage seems to increase.”
The dramatic increase in prices for insurance and reinsurance for natural disaster coverage (outside the traditional U.S. home insurance market, where rates oVsceken require regulatory approval) has significantly improved underwriting conditions and encouraged some companies to invest more capital.
London-listed Hiscox reported half-year results earlier this month, showing group premiums rose 3 percent to $2.8 billion. The company has benefited from its composite model, Hussain said, by choosing where in the insurance chain to take on risk. In the first half, that was particularly true on the reinsurance side, he said, as well as so-called retrocession, which is the sharing of risk with other reinsurers.
Hussain also defended London as a listing venue, following growing concerns over liquidity and recent defections to the United States.
“It has high levels of transparency and governance that shareholders really value,” he added, as well as the “fantastic insurance ecosystem” centered around Lloyd’s of London. “It makes sense for us to be listed here, we certainly have no intention of going anywhere else.”
