Chubb’s CEO on Insurance Availability and Regulation

Evan G. Greenberg, the Chairman and CEO of Chubb Group, recently addressed the pressing issue of insurance availability in his Letter to Shareholders. He emphasized that public certainty regarding insurance begins with regulation that endorses adequate pricing for risks.

Rising Natural Catastrophe Risks are a significant concern for society. Greenberg highlighted the increase in both major and minor weather-related events. Additionally, the concentration of property values in catastrophe-prone regions has been escalating for years, compounded by rising reconstruction costs due to regulations, labor, and materials. This trend further elevates the societal cost of catastrophic events.

“The insurance industry faced $140 billion in insured CAT losses globally last year, which was considered an average year,” Greenberg stated. “The cost of this ‘new normal’ is rapidly increasing.” He noted that the rising cost of catastrophes naturally affects the pricing and availability of insurance.

Importance of Adequate Pricing was stressed by Greenberg, who stated that the public needs greater assurance about insurance availability, which starts with regulations that allow for risk-appropriate pricing. “For Chubb, a 15% return on capital is our goal. Without an adequate return, the private sector can’t draw the capital needed to cover growing exposures,” he stated.

Climate Change and Insurance Costs are directly linked, with climate change price signals evident in the rising cost of insurance. Greenberg pointed out that when state regulators prevent insurers from charging adequate prices and limit their ability to tailor coverage, they inadvertently drive away insurance availability and suppress economic price signals. This inadvertently encourages ill-advised decisions regarding where people choose to live and work, ultimately leading to a crisis.

He cited the recent wildfires in California as an example, where state-imposed limitations on fair pricing for wildfire coverage led to insurers reducing their exposure and withdrawing capacity. Citizens were left with affordable coverage through the state’s insurer-of-last-resort, the FAIR plan, amidst increased reconstruction costs due to stringent state and local requirements and permitting processes.

Building a Sustainable Insurance Model requires allowing insurers to charge appropriate prices, which is the first step towards enhancing availability and creating a sustainable model, Greenberg concluded.