One aspect of reinsurance broking that continues to change is that of managing both clients’ and reinsurers’ demands and expectations. This is not new, but it has become more challenging in recent times, says Mr Julian Robert Hodge of Pana Harrison (Asia) Pte Ltd.
The reinsurance market seems to be quite soft currently, but there are nevertheless lengths to which it cannot go and, on the other side of the coin, ceding companies are fighting to win or retain business in an ever-increasingly competitive environment.
Some of the reasons for this environment may be as follows:
• Although the Asian region continues to outpace growth in other parts of the world, economic growth in many countries has shown signs of slowing and is no longer at the level being experienced two years ago.
• This has in turn led to fewer new risks coming in to the market resulting in increased competition for the existing business. With the price of existing business reducing, cedants have no choice but to fight for their renewal as well as any new account that is offered.
• Competition is not limited to pricing alone. Pressure is applied to other terms, possibly most notably the deductible levels, and ceding companies come under enormous pressure to both reduce rates as well as accept deductible levels that are guaranteed to increase their cost of writing the business. New clauses that can expand the scope of cover are also often introduced, and sometimes these seem to have little relevance to the original cover, but they can still cause problems for the reinsurers considering the risk.
• Fulfilling new regulatory requirements on capital adequacy and the like also means that some cedants are under great pressure to write more premium to justify their capital levels and satisfy shareholders.
• With some slowing down of economic growth, the principal owners of insurance companies, many or most of which are large conglomerates, have applied increased pressure to their in-house insurance company to provide higher returns, as many of them seem to think of insurance, wrongly, as a cash-cow that can produce higher returns whenever required.
• The continuing growth and development of the original insureds – companies and corporations – and the rapid growth of technology also mean that the insured’s requirements for coverage can change. As such, sometimes new products or covers need to be designed and this needs to be done in conjunction with the reinsurers to develop a market for such risks. Existing protections will also regularly need to be re-vamped and updated.
The above are just some examples and no doubt there are many more reasons for the situation that the market is in currently.
The above elements also do not apply to such a large extent on the mega risks, where pricing and terms are controlled by the reinsurance market. However, they certainly apply to the smaller, “bread and butter” risks which are the lifeblood of any insurance company.
A relatively soft reinsurance market and a highly competitive retail market are nothing new and have been experienced before. However, partly for the reasons above, the circumstances and pressures this time are different, and the broker needs to be keenly aware of this when negotiating with both clients and reinsurers.
Room for mid-tier and regional brokers
As recently as a decade ago, the reinsurance broking landscape was one where the “Big Boys” were basically having a monopolistic hold of clients and many clients were relying on them to provide analytical services such as exposure management.
However, what we have witnessed in the past few years saw mid-tier and regional brokerage firms ramping up on their technical abilities with actuarial services and collaboration with third party vendors to provide such analytical tools for the benefit of their clients. Such structural change has enabled them to adapt to the changing landscape and to meet these needs of the clients, where the market desire for wider panels of specialist advisors are ever increasing.
Pana Harrison (Asia) is at the forefront of adapting to the changes and has tied up with third party vendor to provide exposure management analysis and engaging specialist services such as Actuarial, Accident & Health and other specialty lines. These services, coupled with our very experienced team of professionals, enable us to expand our services to our clients to be much more to them than just a traditional placement broker, keeping us relevant and attractive to the clients as a value proposition in an ever changing environment.
Mr Julian Robert Hodge is Regional Director of Pana Harrison (Asia) Pte Ltd.