Insurance premiums are undervalued by 8%

According to calculations by the Actuarial Institute, some non-life insurance premiums do not yet take inflation into account and are therefore underestimated by 8%. Several companies have started to adjust their prices.

Inflation hits the insurance world. Costs are rising for insurance companies, weighing on the profitability of certain products. According to the Institute of Actuaries, some non-life insurance premiums are currently undervalued by 8%. Customers should expect upward price changes. Several major insurance companies have confirmed this to L’Echo.

Understated prices

In a first study examining the impact of inflation in the insurance sector, the Institute of Actuaries in Belgium (IA|BE) has compiled its findings. His conclusions are clear: galloping inflation has not yet been fully passed on to all branches of activity in insurance premiums.

In some branches of non-life insurance, the rates are understated, up to 8% on average. To reach this conclusion, the actuaries based themselves on the inflation figures and projections from Statbel and the Planning Office and on the data they had available in the insurance sector. Actuaries are number experts, probability specialists. They are the ones who create the actuarial models that enable insurance companies to assess risks, set premiums, reserves to be created and ensure that insurance products are profitable.

“The inflation observed since the beginning of the year is higher than the price history on which the insurance companies base themselves. It is for this reason that the premiums in certain industries may be underestimated by 8%”, explains Fabian de Bilderling, President for the Actuarial Institute. This figure of 8% could even be a low estimate, says the expert. The survey is based on inflation figures from August last year. However, inflation has risen further in recent months.

The expected consequence is, of course, a increase in the premium for a whole range of insurance products. “In certain industries, insurance companies will have to revise their prices upwards,” confirms Fabian de Bilderling, chairman of the Institute of Actuaries.

“The risk is that some insurance policies will become less profitable.”

Fabian from Bilderling

Chairman of the Institute for Actuaries

Inflation of material prices, repair costs or personnel costs increasing insurers’ costs and reducing their margins. “The risk is that some policies will become less profitable,” says Fabian from Bilderling. In the area of ​​occupational accidents, the premiums are calculated, for example, on the basis of a history of compensation. But workplace accidents that happen today can cost insurance companies more. “The reserves built up by the insurance companies may turn out to be insufficient,” points out the chairman of the Institute of Actuaries.

Automatic adaptations

Price increases seem inevitable. Some have already taken place, such as in home insurance, where adjustments are made automatically. These premiums are actually based on the Abex index, which takes into account developments in construction prices. This index is revised twice a year, in January and July. It rose 8.65% in one year. “The increase is mainly explained by the higher costs of building materials, especially after the war in Ukraine and the difficult economic/energy context”, explains one at AG Insurance. The upward adjustment of the premium depends on the month in which the contract is signed. Home insurance contracts entered into between August and today have therefore already been increased. This applies to all insurance companies.

“At this time a partial pass-through of inflation is applied to car insurance premiums. This is between 5% and 7%.”

Car insurance is also highly exposed to inflation. The amount of repairs and the cost of spare parts is increasing sharply, placing an ever greater burden on insurance companies. At Belfius Forsikring, the tariffs have already been adjusted. “In car insurance, the impact of inflation is obvious both on operating costs and on the cost of interventions after a claim. At this stage, a partial premium impact is applied. It is between 5% and 7%”, we say at Belfius.

At AG Insurance, there is also a threat of an increase: “Within motor vehicles, there will be an increase from next January 1, but we cannot yet say in what order. It is a question of coping with the increase in the cost of repairs in bodywork and workshops, as well as the increase in the price of spare parts”. points out at AG Insurance. On the ING side, the amount of car insurance premiums was increased by 3% in July 2021. “No other increase is planned for 2022”, accelerates the bancassurance company, which specifies that “to date, the premiums for insurance contracts marketed by ING Belgium do not directly reflect inflation.”

Wage indexation

Cost inflation for insurance companies is also linked to the upcoming wage indexation. “Our personnel costs follow the health index”, we remember at Bâloise.

“No decision has yet been made on a premium increase due to inflation, but I can’t say it won’t happen.”

Serge Jacobs

Ethia’s spokesman

Some companies have begun to consider a potential increase in premiums in the near future. This is the case with KBC: “The impact of inflation varies from one insurance product to another. The increase in the cost of living has not only made repairs more expensive, but also in some cases medical costs and risk reinsurance (eg due to rapid climate change). Competitive considerations may also play a role in the pricing of an insurance product. Taking all these parameters into account, KBC will assess within the coming weeks and months the extent to which a pure premium increase is appropriate. KBC will inform affected customers of any price adjustment via the expiration notice“, we say at KBC.

At Ethias, we also ask ourselves questions. “Nothing is planned at the moment. But we have seen cost increases for many insurance policies. The cost of car repairs is increasing. In family liability, the cost of claims related to repairs is also increasing. The cost of labor “work is also increasing. No decision has yet been made on an increase in the premiums due to inflation, but I cannot say that it will not happen”, emphasizes Serge Jacobs, spokesman for Ethias.

On Axa’s side, inflation will clearly have an impact on insurance premiums. It remains to be seen in what order of magnitude. “The increase in claims costs – for example, the costs associated with natural disasters due to climate change – is significant. Costs are also increasing. Inflation will affect premiums for liability insurance, property and casualty (auto and fire) and legal protection insurance. But the percentage increases are not yet defined”, Axa points out.

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