Reinsurance and a Hard Market: What’s in Store for 2024 and How Can You Mitigate The Risks?

Reinsurance remains a fundamental aspect of insurance, providing risk management and financial stability for insurance companies. While reinsurance is currently experiencing a hard market, there are reasons to be optimistic. Here’s what to know about reinsurance as we wrap up 2023 and prepare for 2024. 

Investors Are Still Interested in Insurance Risk

While capital may have dwindled in recent years due to increased claims and an inflated economy, forecasters predict good things for 2024. According to David Priebe, chairman at Guy Carpenter, investors around the world are still interested in insurance risk investment. They are still cautious and expect transparency, but the capital will begin to trickle back in throughout the coming months.

Investors are particularly comfortable putting funds into catastrophe bonds because it’s clear what their money is covering and how it’s covering in terms of risk. The clearly defined certainties versus dangers within a distinct time frame gives investors confidence in being able to track results. However, their demand for higher returns on their investments may cause rates to remain high

Looking forward to renewals, that market seems likely to be more and more competitive. 


Reinsurers Will Focus on Severe Catastrophic Insurance

Because we’re still dealing with inflation, reinsurers may not be quick to expand their capacity. However, they will pour more energy into severe catastrophic insurance. That was the case in 2023. Over the first half of the year, catastrophe bonds reached record levels of activity — to over $9 billion of limit.

This may continue into 2024. According to Swiss Re, the demand for U.S. catastrophe reinsurance could grow by up to 15% by the end of 2024. Already, demand for catastrophe reinsurance is coming from personal lines insurance firms. However, Swiss Re expects to see a similar increase in demand coming from commercial line carriers going forward. 

Inflation is expected to continue unchanged for the foreseeable future, and the hard market won’t soften anytime soon. Still, there are ways agents can mitigate some of these impacts of inflation and the hard market until things begin to change. 


5 Ways Agents Can Mitigate The Impacts of a Hard Reinsurance Market

There are ways independent insurance agents can mitigate the adverse impacts of a hard reinsurance market. Here are a few ideas:

#1 Continue to Diversify Your Portfolio 

Independent agents can continue to work on diversifying their portfolio of carriers. By representing many insurance companies with different risk appetites and specialties, agents can provide clients with more options, even when some markets become more challenging. Having a diverse portfolio strengthens your negotiating position with carriers and reinsurers. You can leverage your broad book of business to secure more favorable terms and conditions for your clients.

#2 Educate on Risk Management

Agents can play a crucial role in educating their clients about effective risk management practices. Helping clients understand and implement risk mitigation measures can make them more attractive to insurers and potentially result in more favorable underwriting terms.

Educating clients about risk management also demonstrates the agent’s commitment to the client’s success and well-being. This builds trust and enhances the overall client-agent relationship, improving the likelihood of clients remaining loyal during challenging market conditions.

#3 Be an Advocate For Your Clients

During a hard market, it’s critical for agents to be strong advocates for their clients. This involves negotiating on behalf of clients to secure the best possible terms, coverage, and pricing. Agents should be proactive in demonstrating the value of their clients’ risk profiles to insurers.

#4 Consider Alternative Risk Financing

Agents can also guide clients in strategically transferring certain risks through insurance coverage and risk financing options, like captives or self-insurance programs. This involves a careful assessment of which risks are best retained by the client, which can be transferred to insurers, and which can be mitigated through risk management practices. These alternatives can provide more control over risk and reduce dependence on traditional reinsurance markets.

#5 Communication and Relationship-Building

Clear and proactive communication with clients is essential. Keeping clients informed about market conditions, potential policy impacts, and strategies for navigating the current environment helps build trust and manage expectations. 

Agents who have established trust with their clients are more likely to retain business during challenging market conditions. Long-term relationships can also lead to more flexibility in negotiations with insurers.

Deloitte says that “insurers need to evolve to better serve industry, society, and the planet.” The foundation is building trust and confidence in consumers. From there, insurers can work to create access and inclusion for all people. The remaining three tenets are to upgrade the insurance value proposition, enhance brand reputation, and improve the bottom line by reducing the frequency and severity of insurance events. 

It all goes back to putting clients first, serving as the “financial safety net” for your neighbors and greater society.


Final Thoughts

The hard reinsurance market is likely to continue into 2024, but there are reasons to be optimistic. In the meantime, it’s a matter of adapting to the hard reinsurance market through strategic planning, relationship-building, and a focus on providing value to clients. Independent insurance agents who are proactive, knowledgeable, and client-focused can navigate through challenging market conditions more effectively.

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