Insurers’ hopes of managing the inflation crisis were badly dented by the reaction to the recent mini-budget

By Jon Guy

All is not well in the UK insurance industry.

Jon Guy

Jon Guy

If a week is a long time in politics, then a week of political upheaval has left UK insurance chiefs far from happy.

The financial markets’ reaction to Chancellor Kwasi Kwarteng’s mini budget was extreme, to the point that the International Monetary Fund decided it needed to intervene and call for the announced tax cut package to be rescinded.

Sterling plummeted and the Bank of England had to step in to halt fears of a gilt market collapse and a number of pension funds with it.

The week saw insurers’ hopes of managing the inflation crisis look to have been badly dented.

Increased costs

There are now fears that inflation is set to soar far faster than predicted and with the pound struggling against the US dollar, the cost of overseas materials – needed to meet claims – are set to rise.

It has reached a point where one leading insurer is refusing to talk about inflation-related topics to the media, as they feel the only response will be to say premiums will need to rise.

This is not a message they want to be issuing at a time when the cost of living crisis is beginning to bite and we are seeing new energy price increases arriving.

Kwarteng and Prime Minister Liz Truss have sheltering from the storm in the past two weeks, but the Chancellor did hold a meeting with senior members of the banking and insurance industry in an effort to reassure them that the storm will pass and that there will be calmer financial waters on the horizon.

However, that message does not seem to have had the desired effect.

The concern amongst the insurance c-suite has not rescinded.

Indeed, their fears were not eased by World Bank President, David Malpass.

Speaking last week, he said: “Weathering this perfect storm and undoing the recent reversals in development require new macro- and micro-economic pathways in both advanced and developing countries.

“The urgency is clear in daily news reports of inflation, climate change, famine, civil protests and violence.”

Insurers are looking at every avenue to find some relief form the pressure the industry is under.

The week also saw a first for one insurance industry chief executive. The London Market Group’s Caroline Wagstaff revealed she had paid her first ever visit to the Labour party conference in Liverpool.

Could this be the first clear indication of a growing belief that change is afoot and that insurers are keen to have a foot in both camps?