The too much money problem
It is well known in the insurance world competition among reinsurers is currently fierce. In theory this should have played out well for consumers because cheap reinsurance would lead to cheaper insurance policies. In some cases it has but in many cases it hasn't. In Florida, insurers and decision makers have made several arguments as to why insurance costs must continue to increase. One reason was that previous suppressed rates required a time period for insurers to make up their profit margins. Another more recent reason is a sudden concern over water damage fraud.
Despite any headlines since 2007 about the cost of disasters the industry is still awash with cash.
So, the Financial Times recently reports that,
Warren Buffett’s Berkshire Hathaway disclosed late on Friday that its Reinsurance Group endured a $400m loss in the second quarter after it reached an agreement with AIG to take on a chunk of its risks. Its European rival Swiss Re, meanwhile, said its first-half profit had fallen more than a third.....
“The current environment is unsustainable over any reasonable period of time,” said Mr Greenberg [CEO of Chubb]. “Many companies are not earning their cost of capital — and many are losing money, or will lose money in the future.”
Regulators have also cautioned about the impact of ultra-loose monetary policy on insurance companies, which are among the world’s biggest investors in corporate and government bonds.
Note that Swiss Re has been giving out special dividends to its shareholders in recent years because it didn't know what else to do with all its profit.
So, we can add low interest rate monetary policy to the list of reasons insurers may seek continued increases in insurance pricing. The standpoint places profit as an overriding all important goal value and this brings to the forefront important questions about the intent and role of insurance in society in the first place.