Monetary policies in the world do contribute to increasing prices for coverage.
The CEO for General Re, a unit of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE: BRK.B) recently put forward an argument that central bank polices around the world on money are what are stifling growth in the insurance industry.
The Chief Executive Officer argued that most central banks usually curb interest rates on various government bonds so that they can prevent recession, and at the same time energize the banking industry. But this move according to the CEO basically favors debtors, and leaves out savers suffering. Therefore, the insurance industry being one based on saving, suffers.
Among central banks that use this practice is the Federal Reserve, and it has kept the interest rates low so that the economy can be stimulated and also so that employment can be boosted. Therefore, insurance firms including American International Group, Inc. , Travelers Cos, and even The Chubb Corporation (NYSE:CB) have been forced to revise their rates upwards. Therefore, customers are being charged more, because the insurance industry did not only suffer major losses from natural catastrophes, but their bond portfolios did not perform well, and as such their income was greatly lowered.
Tad Montross, the CEO for Gen Re is no stranger to the losses that insurance firms face due to these policies. The investment income for his company declined in 2011 from $1.09 billion to $1.14 billion. Losses that it incurred from natural disasters run to around $861 million, an increase from $339 million that it had gotten the previous year; and its net income also fell from $937 million to around $898 million.
Therefore, the CEO for General Re is of the opinion that interest rates used by central banks should be revised, or better yet changed. This is since if they remain the same, then the insurer is the one who suffers.
