Current drivers of social inflation are ongoing with a concerning trend of capital inflows to the litigation funding sector, Mike Mitchell head of property and specialty underwriting reinsurance at Swiss Re, told Insurance Insider during a (Re)Connect conference fireside chat.
It came after he was asked how far the casualty market had come in terms of remediation and tackling social inflation which he went on to describe as a “systemic trend”, separate from a cycle of economic inflation which had been caused by the pandemic.
Mitchell said there had been significant improvement in the US casualty market in terms of improving the rating environment, clarifying policy coverage and reducing limits which had been helpful to the short-term profitability of the marketplace.
Despite this, he warned that capital flows which contributed to social inflation, such as litigation funding, did not seem to be slowing down.
“We don’t really see too much positivity in terms of the long-term trend around social inflation,” he said. “I think that’s something we need to be able to evidence before we can have real confidence that this is a phenomena which is behind us.”
Outside of the US, Mitchell said the issue was less of a problem but noted that there had been movements in Europe on consumer protection and the ability to generate collective redress suits that meant the region was on the “watchlist”.
On climate change, he said that expectations of increased frequency and severity of events had started to play out in Swiss Re’s loss experience over the past decade.
Mitchell said that previously 80% of insured cat losses would be the result of primary perils but that this had shifted so more than half the losses being experienced by the firm had come from secondary perils.
“That’s something which perhaps we’re even a little bit late to start to think about reacting to, because the science was pointing us in this direction for some time,” he said.
He also said that secondary losses were beginning to be dominated by severe convective storms incorporating hail rather than “headline grabber” flood or wildfire events.
On terms and conditions, Mitchell made the point that there was a “significant” need to improve the clarity and transparency of contracts on both the primary and (re)insurance side.
It came after he was asked what the key pressure points on the market were ahead of 2022 renewals.
“There were too many surprises coming from too many directions in 2020 and 2021 for us to not take that as a call to action as an industry to improve that transparency of information and data,” he said.
For more from Mitchell’s fireside chat, including Swiss Re’s thoughts on climate change strategies, video content will remain on-demand on the free to access (Re)Connectplatform and will be made available on the events platform in the coming days.