RENEWAL MARKET
Reinsurance Renewal Market Creates Challenges For Commercial Insurance Buyers
Following 2022 ’ s hardened reinsurance market , the January 2023 reinsurance renewals for commercial insurance companies show these conditions are continuing . The risk-adjusted global property catastrophe reinsurance rates increased on average by 37 % on January 1 , 2023 — the largest yearly increase since Hurricane Andrew in 1992 and above the 9 % increase at the start of 2022 . The entire reinsurance market is experiencing rising rates , tighter terms , and difficulties around sufficient capacity as reinsurance companies stop offering coverage at all .
As the reinsurance market experiences some of the largest rate increases in over 30 years , reinsurance capacity continues to be constrained across many coverages . The price increases are driven by macroeconomic challenges , geopolitical concerns , and claims losses that the market had in 2022 and prior years . A convergence of geopolitical and macroeconomic shocks — including the war in Ukraine , volatile energy markets , record high inflation , interest rate hikes , natural catastrophe events like Hurricane Ian , and depleted capital — led to a highly challenged and complex reinsurance renewal cycle in January 2023 for all insurance companies .
AS A COMMERCIAL INSURANCE BUYER , WHY DOES THAT CONCERN ME ?
The shift in the reinsurance market — with supply decreasing as reinsurers cut their property catastrophe and other exposures , or exit some markets altogether — is driving higher pricing and increased constraints for insurance companies . There is also increased demand as reinsurance buyers ( insurance companies ) want coverage for more premium and higher insured values in the market . According to Gallagher Re , the area with most constraint was US property catastrophe . Other than property reinsurance , insurers were able to attain capacity , but they often had to pay more and accept tighter terms and conditions .
Reinsurers are passing on the higher rates and more challenging terms and conditions onto the insurance companies . They are also being more cautious about certain coverages . In property catastrophe contracts , reinsurers are giving clients more restrictive terms and structures that may limit their exposure to losses . They also want to push the possible trigger point for reinsurance payouts upward , putting more risk on the insurance companies .
The increase in reinsurance rates is pressuring commercial insurers to raise their rates further , even as commercial insurers are already raising rates to account for inflation , higher costs , greater numbers of claims , and lower returns from their investment portfolios . In turn , insurance buyers will be paying 10 %– 20 % more for the same or less coverages from their agent / insurance company . Furthermore , buyers will also face more restrictive terms and conditions . +
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