Challenges and Insurance Market’s Responses to the Economic Crisis

Challenges and Insurance Market’s Responses to the Economic Crisis

challenges-and-insurance-market-s-responses-to-the-economic-crisis-zbornik-kocovic-smallOver the past 15 years the insurance market has been significantly impacted by three economic crises, with lasting negative implications. At the time of the release of the monograph ‘Challenges and insurance market’s responses to the economic crisis,’ the world had plunged deep into a new economic crisis triggered by the conflict in Ukraine and the resulting energy crisis. In 2022, European Union countries are facing high inflation for the first time in three decades, leading to an increase in previously extremely low interest rates. The rise of the reference interest rate as a measure to combat inflation, applied by all European countries, leads to an increase in interest rates. On the one hand, this has a positive impact on the growth of investment returns for insurance companies, but on the other hand, it leads to an increase in the discount rate that affects the decline in the value of long-term financial instruments and results in capital losses for insurers.
The inflation has had a direct negative impact on the depreciation of insurance premiums, while in the case of motor insurance it has led to an accelerated increase in claims due to the rise in prices of spare parts and labor costs for car repairs. The depreciation of insurance premiums in inflationary conditions results in inadequate technical reserves and necessitates the inclusion of inflation effects in the calculation of insurance premiums and technical reserves. This necessity aligns with the implementation of the Solvency II framework, which prioritizes the sufficiency of technical reserves as a key factor in establishing and maintaining the solvency of insurers and ensuring the adequacy of capital for the risks taken.
The implementation of IFRS 17 in an extremely unfavorable macroeconomic environment poses significant challenges for insurers. The high costs of implementation, as well as the complexity of the standard and unclear requirements, have created uncertainty in the insurance industry. Furthermore, the implications of the standard for financial stability are numerous. The monograph provides recommendations on how insurers can best prepare for the high operational, technological, systemic, and financial requirements that lie ahead. Climate change has become an urgent and pressing global issue, leading to an increased frequency and severity of natural disasters. Insurance plays a crucial role in mitigating the financial impacts of catastrophic risks and in supporting resilience of communities and businesses to the changing climate. Thus, special attention in the monograph is devoted to managing catastrophic risks through a public-private insurance model.
The insurance industry has seen a tremendous amount of change in recent years, driven by technological innovation such as artificial intelligence and machine learning. The COVID-19 pandemic has further accelerated this trend, highlighting the importance of digital transformation and enabling insurers to quickly adapt to new ways of working and serving customers. These advancements have enabled insurers to more effectively price risk, identify fraudulent activity, and enhance the overall customer experience. As the pace of technological change continues to accelerate, we can expect even more innovative solutions to emerge, transforming the way insurance is bought, sold, and managed.
Is the insurance market able to resist challenges and demonstrate resilience in times of crisis? Does climate change represent a threat or an opportunity for the insurance industry? In what ways can technological innovations contribute to the operations of insurance companies? We have attempted to answer these and other current questions related to challenges and insurance market’s responses to the economic crisis through research conducted by a large number of authors, academics, and insurance experts, whose results are presented in the monograph.
We are grateful to the authors for their great commitment to the preparation and publication of this scientific monograph, as well as to the reviewers for useful suggestions that have contributed to the quality of the monograph.