Insly Insurance Market Outlook: Challenges for 2022
Risto sees that the main challenges for the insurance market tend to be at the macro level. Namely, inflation and loss of trust in institutions that will have its impact on the insurance market.
The first challenge to the insurance industry is inflation. It's hard to overlook that we have high inflation and negative interest rates. That is a really bad combination for insurance companies who are getting money from their customers upfront and paying claims later, when inflation has already kicked in. And they need to make money from investments.
We officially have 4-7% inflation. It is actually probably around 20%, because the official inflation is just measuring some kind of strange basket of goods that doesn't say anything about our real consumption. Combined with negative interest rates, 20% inflation is very bad. It's not easy to run insurance companies in this kind of macro environment.
Loss of Trust in Institutions
The second challenge is major instability of institutions or loss of trust in institutions: governments, media, central banks. Risto sees this relating quite well with how these institutions handled the COVID situation. So, people are divided and one group of people doesn't trust the government pretty much anymore.
That's part of a longer story. We see institutions and governments getting weaker - well, they are actually getting stronger and stronger, but trust is falling. That's maybe not something that has a direct implication for insurance businesses, but the weaker institutions will become, the more stupid things they tend to do. One act of stupidity could be the act of war or the threat of it, which we have already seen.* That might have a major implication for the insurance industry as well. We are seeing that already happening a bit.
*The story was written before the 24th of February, 2022.