So, Insurance Companies Need Insurance, Too?

What is Reinsurance?

Reinsurance?is known as insurance for insurers or stop-loss insurance.

Do I still have you with me?

Reinsurance allows insurers to transfer portions of their risk portfolios to other parties to reduce the likelihood of paying a large obligation resulting from a claim.

This helps insurance companies manage their risks by spreading the potential cost of claims over a larger pool of resources.

And, in theory, it should help insurance companies offer coverage at a more affordable price...

But in today's market, as an insurance buyer, you may not agree with that statement.

Let's dig in.

What is happening to Reinsurance today?

The global reinsurance market has grown significantly in recent years, driven by the increasing demand for insurance coverage in emerging economies, as well as the growth of new and innovative insurance products.

The current reinsurance market is a dynamic and rapidly changing landscape, shaped by a variety of factors, including natural disasters, technological advancements, and regulatory developments.

The geopolitical and macroeconomic shocks that occurred during 2022 including the war in Ukraine, fractured energy markets, 40-year high inflation, interest rate hikes, depleted capital and Hurricane Ian (the second most expensive natural disaster), have resulted in the hardest property reinsurance market rates in a generation.

According to Guy Carpenter, critical factors from the January 2023 Reinsurance renewals are as follows:

• Property was the most challenged sector. Market adjustments focused on three distinct areas: pricing, attachment points, and coverage.
• The imbalance of supply and demand for Catastrophic Loss prone Property risks is driving a stressed market.
• Some reinsurers reduced or withdrew their property capacity in 2022, but others are now viewing this market inflection point as an opportunity to increase their participation.?Some positivity - phew!
• Buyers reassessed the cost/benefit of additional limit purchases, which resulted in only negligible increases.
• Capacity was stable across most casualty lines with very little change in terms/conditions.??
• Capital did start to move more freely in December as the degree of market correction became clearer.

While these results are certainly not all "doom and gloom", the hints of optimism are certainly cautious.

How Does Reinsurance Impact My Renewal?

Reinsurance treaties can have a significant impact on the insurance renewal process in a number of ways, including:

Pricing: Reinsurance treaties can impact the pricing of insurance policies, as insurers may pass on the cost of their reinsurance coverage to policyholders.

Coverage terms: Reinsurance treaties can also impact the terms of insurance coverage, as insurers may have to adjust their policies to meet the requirements of their reinsurance partners.

Renewal process: The reinsurance renewal process can also impact the insurance renewal process, as insurers may have to negotiate new reinsurance treaties or adjust existing agreements in order to secure the coverage they need to renew their insurance policies. (I'm looking at you non-concurrent terms)

Capacity: The availability of reinsurance capacity can also impact the insurance renewal process, as insurers may have to find alternative reinsurance solutions if their preferred reinsurers are not able to provide the coverage they need.

Everybody needs insurance...

Despite these challenges, the reinsurance market remains a crucial component of the global insurance industry, providing a critical source of capital and stability in the face of natural disasters and other unpredictable events.

As the insurance market continues to evolve and grow, the reinsurance industry will play a vital role in ensuring its long-term stability and success.

While none of us can control the underlying factors that impact the reinsurance market, it is critical that as you are making insurance buying decisions, you choose a broker partner that:

1. Thoroughly understands the reinsurance landscape and is up-to-date on critical developments
2. Prepares you both financially and operationally for how changes in the reinsurance market will impact you and your business
3. Can arm you with strategic ideas and out-of-the-box solutions to combat the traditional insurance procurement process

As always, if you would like to discuss this further or have questions, please reach out to me here on LinkedIn or email me at [email protected]