Hiscox boss says rising insurance prices are a “strong signal” on construction risks

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Insurers and reinsurers raising prices have sent a “strong signal” to policymakers to limit the risks of new build projects, Hiscox’s chief executive said, amid growing concerns about insurance.

The cost of insurance and reinsurance against natural disasters such as fires and floods has skyrocketed in recent years as the industry reacted to four years of global claims exceeding $100 billion.

The withdrawal, through higher premiums and stricter terms and conditions, has made affordable coverage in some US states much harder to obtain.

“Ultimately, what you’re trying to do with pricing is to signal a change in behaviour,” Aki Hussain told the Financial Times.

London-listed insurer Hiscox is a major writer of natural disaster protection policies, both through insurance and reinsurance, particularly in the US.

“If you’re going to build on flood plains, it could be problematic to get flood insurance,” Hussain said. He said insurers and reinsurers are “absolutely there” to pool risk between communities, but only if there is some risk management.

“The only way we can really signal that — we can lobby, we can have conversations — but the strongest signal is ultimately through pricing.”

Insurance executives have been increasingly vocal in calling for changes to rules that discourage building in floodplains and fire-prone areas, or at least strengthen building codes.

The acting head of Britain’s flood reinsurance scheme last month called on the Labor government to ensure they do not “make the (flooding) problem worse” with their plans to build 1.5 million new homes in England.

In the US, executives have pushed for other changes, such as legal reform, to limit the spiraling costs of claims. Such recent reforms in Florida have bolstered the reinsurance supply, according to analysts.

“We think it’s an insurable and re-insurable risk, but it’s evolving. Climate change has a definite impact in several ways,” Hussain added, such as windstorms that tend to be wetter and slower moving. Once a hurricane has “made landfall, flood damage appears to increase.”

Significant increases in insurance and reinsurance prices for natural disaster coverage — outside the core U.S. home insurance market, where rates often require regulatory approval — have dramatically improved underwriting conditions and encouraged some firms to deploy more capital.

London-listed Hiscox published half-year results earlier this month, showing group premiums rose 3% to $2.8 billion. The company benefited from its composite model, Hussain said, by choosing where to take risk in the insurance chain. In the first half of the year it was particularly on the reinsurance side, he said, as well as so-called retrocession, which is sharing risk with other reinsurers.

Hussain also defended London as a listing venue after concerns grew over liquidity and recent defections in the US.

“It has high levels of transparency and governance that shareholders really value,” he added, as well as the “fantastic insurance ecosystem” centered on Lloyd’s of London. “It makes sense to be listed here, we certainly have no plans to go anywhere else.”