Are life insurers paying far too much for reinsurance? Are they getting the best advice? For too long the life reinsurance market has been dominated by a handful of large reinsurers who have been able to set market terms and conditions, even to the point of advising their clients as to what to buy.
At the same time these reinsurers have worked hard to keep brokers firmly at arm’s length. But, slowly, the tide is turning.
While in its day this cosy insurer-reinsurer relationship may have had its place, in today’s world of greater transparency and stakeholder scrutiny it is very questionable.
An Opaque World
The lack of transparency in the prevailing market is all pervading, extending to pricing and value, where, for example, reinsurers provide ancillary services, such as underwriting advice, all as a part of the ‘package’.
We often see examples of reinsurers contractually ‘locking up’ an insurer for a period of years. Rarely do insurers seek quotations or ideas beyond their current reinsurer. In the non-life reinsurance world all of this would be seen as bizarre almost.
The dominant reinsurers have built some pretty formidable ramparts and, while it is a self-serving statement, they proudly declare that the barriers to entry are too high for the competition.
But the evidence doesn’t support this and we are seeing ever increasing activity in the life reinsurance arena from new players.
The benefits to a reinsurer from writing life business are material, both in terms of profitability, stability and diversification, and given the state of the non-life market, quite compelling.
Shining a Light
It is not surprising that in this environment we see reinsurance brokers becoming more involved in the life sector.