January 19, 2023
What: The reinsurance market is facing significant challenges due to global events causing volatility, leading to large increases in reinsurance rates at the January 2023 renewals. Reinsurance rates increased significantly, with average global rate increases of 37% for global property catastrophe coverage, 45% for direct and facultative business, and 50% for retrocessional cover. These rate increases represent the largest year-on-year increases since 1992.
Why it matters: Many insurers won’t be able to pass these costs through to their policyholders easily. This means that changes to coverage constraints and limits will need to be implemented in order to protect profitability. How fast an insurer can get a product change implemented will significantly impact profitability as delays will simply lock in losses.
What: In today’s economic conditions, companies must be able to adapt to changing market conditions in order to survive. One way insurers are doing this is by forming strategic partnerships with realtors and auto dealers. Many of these partnerships focus on referrals currently, but embedded insurance is the next step.
Why it matters: A lot of these partners have unique data, and there’s a huge opportunity for insurers to take advantage of that data in order to create better and more customized products.
What: Social inflation, which refers to the rise in liability loss costs beyond what would be expected from economic inflation alone, is causing friction between policyholders and their insurers due to a lack of understanding among consumers.
Why it matters: It’s difficult to avoid the frustration inherent in premium increases and especially the sharp increases that inflation and social inflation are causing. This frustration is likely to result in lower retention numbers for insurers, as long-term customers look elsewhere. However, by creating opportunities to mitigate these rate increases via loss control programs or smarter pricing, insurers can increase their retention rates and better weather this storm.
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