Inflation: a double-edged sword for insurers
Inflation and rising interest rates pose challenges for the insurance industry. However, with the right strategy and good risk management, opportunities are also opening up on the investment side.
After a period of high inflation and rising interest rates, inflation in Switzerland has now returned to a very low level. While this may stabilise claims costs, it is also expected that investment income will fall.
After years of record-low inflation, Switzerland was hit by sharp price increases from the first quarter of 2022 to the second quarter of 2023. Although inflation was still low by international standards at over 3 per cent in some cases, it was still well above the target range of 0 to 2 per cent, which the Swiss National Bank (SNB) equates with price stability. Both central banks and the SNB responded to inflation by raising key interest rates. Since the third quarter of 2023, inflation has fallen back to below 2 per cent and has been close to zero since the start of 2025. This means that Switzerland is in fact in a very low inflation environment – with individual risks of deflation.
For non-life insurers in particular, the price increases of previous years had a direct impact: Higher spare-parts and construction costs led to higher claims and additional provisions. Some of these effects are still having an impact, even if the current inflation rate is minimal.
Cost increases passed on after a delay
Insurers cannot offset increased expenditure directly on the revenue side, as premiums can only be adjusted after a delay. In addition, there is intense competition in many sectors. Cost increases cannot be passed on to customers without consequences. Competition has led to a tendency for non-life insurance premiums to fall in recent years. According to the Swiss Consumer Price Index, insurance products cost an average of 8.9 per cent less in 2024 than ten years ago.
One example of this trend is motor vehicle insurance, which fell by 17 per cent compared with 2014. Over the same period, prices for vehicle spare parts and accessories increased by 5.9 per cent. Replacing furnishings and floor coverings in 2024 cost 5.6 per cent more than a decade ago. In other words, insurers feel the impact of inflation if a garage owner charges a higher price for a more expensive replacement part or if it costs more to replace a window after a storm.
In view of rising claims costs, premiums are currently expected to rise. However, intense competition sets clear limits on premium increases. Insurers must therefore set themselves apart from their competitors by offering differentiated products and services.
Interest rate environment: return to zero interest rates
After a brief period of moderate interest rates, Switzerland has returned to a zero-interest rate environment since mid-2025. The SNB base rate is 0 per cent, while the 10-year Swiss yield is around 0.27 per cent (as of 25 February 2026). This reduces the potential return on the investment side and makes it more difficult to obtain guaranteed interest in life insurance. If inflation and interest rates remain low for an extended period, this could further dampen demand for traditional life insurance products.
Solvency ratio as proof of resilience
A renewed prolonged period of low interest rates would also pose a challenge for insurers’ investment activities. However, Swiss private insurance has a strong capital base and risk-appropriate investment strategies. At an average of 246 per cent, the solvency ratio as of 31 December 2024 was well above the 100 per cent required by law.