The Luxembourg insurance and reinsurance industry is experiencing growth, , managing director of the Luxembourg Insurance and Reinsurance Association (Aca), told Paperjam on Friday 22 November 2024. This follows a successful Aca Insurance Day held the previous evening, on 21 November, which attracted more than 700 attendees, including Aca members and key industry stakeholders. Hengen described the event as a “notable success” and highlighted the strong support from Luxembourg’s finance minister, (CSV), for both the association and the wider insurance sector.

Hengen particularly emphasised Roth’s commitment to supporting Luxembourg’s financial sector. Roth to transpose EU directives without additional regulation or “gold plating,” which is crucial for maintaining Luxembourg’s competitive position in the global market. This message of regulatory clarity and support resonated strongly with attendees and underlined the government’s backing for the industry.

Life insurance

Of particular note was the positive development in Luxembourg’s life insurance sector. After three years of stagnation, the market has seen a “remarkable turnaround.” Hengen noted that premiums were growing at a spectacular rate, with 2024 poised to be the best year ever for life insurance in Luxembourg. While final figures would not be confirmed until early 2025, the dynamics pointed to continued growth in the sector. Despite remaining challenges, Hengen expressed optimism about the sector’s future.

Challenges

However, the broader insurance market faces several challenges, particularly in terms of competitiveness, natural catastrophes and geopolitical risks. Hengen emphasised that “Europe must stay competitive in the global market,” noting that Asia is emerging as a significant player in the insurance sector. As such, maintaining competitiveness is crucial for both Luxembourg and the European Union.

He also acknowledged that geopolitical instability is becoming an increasing concern for insurers, as it often leads to economic disruptions, which, in turn, raise risks and the cost of claims. He stressed that while geopolitical tensions themselves might not pose an immediate threat to insurability, the economic disruptions caused by such tensions were a significant factor in rising insurance premiums.

Natural disasters

Another major topic of concern was the issue of “insurability in relation to natural disasters.” Hengen noted that in many regions, obtaining insurance for natural catastrophes is becoming increasingly difficult due to the rising frequency and severity of events. For example, in certain flood-prone areas, coverage may become unavailable, and reinsurance will play a crucial role in determining whether insurers can continue to offer affordable policies. As natural disasters become more frequent and severe, the cost of insurance is also rising, making premiums unaffordable for some households, cautioned Hengen.

Flood insurance in Luxembourg

Hengen provided insights into Luxembourg’s approach to flood insurance, which is offered by private insurers. Luxembourg is divided into two geographical zones: one at high risk of flooding and another less likely to experience floods. Private insurers are committed to offering coverage in both zones, but this coverage is not mandatory. Approximately two-thirds of households in the high-risk flood zone currently have insurance, although many remain reluctant to purchase it. Hengen suggested that this reluctance stems from a belief that these households are not at significant risk of flooding, despite changing weather patterns. Traditionally, flooding in Luxembourg was confined to river areas in winter, but more frequent summer thunderstorms have altered the risk profile, with even homes in elevated areas now vulnerable.

Outlook

Looking ahead to 2025, Hengen expressed optimism about the future of the Luxembourg insurance market. He suggested that 2024 marked a turning point and anticipated another strong year for life insurance in 2025. However, he acknowledged that the non-life insurance sector would continue to face volatility in the coming year, with the severity and frequency of natural disasters unpredictable, making it difficult to forecast the extent of claims and their impact on the market.

Despite these challenges, Hengen believes that the increasing awareness of insurance as a vital risk management tool, especially in the context of natural catastrophes, will likely lead to greater acceptance of insurance as a necessary form of protection.

AI in insurance

Reflecting on the growing role of artificial intelligence in the insurance sector, Hengen explained that while AI is highly effective at “digesting” large volumes of data and improving predictive capabilities, its practical applications in the industry are still unclear. For example, the Luxembourg government now provides publicly available flood risk data, which can be processed using AI to refine predictions. Although Hengen was not aware of specific AI applications by individual insurers, he emphasised that AI will play an increasingly important role in the industry’s future. With the introduction of the EU’s AI act, Hengen noted in the interview, “AI is here to stay and will become more important to the sector over time.”