Commoditisation challenges reinsurance profitability

Against a backdrop of an increasingly commoditised market, reinsurers are under greater pressure to restructure and innovate in order to support profitability in a soft market, according to Christian Reber, partner and managing director at Boston Consulting Group.

Reber, who advises re/insurance clients on topics of corporate strategy and business transformation, told Intelligent Insurer that a commoditisation of reinsurance - particularly in the catastrophe and motor lines of business - is creating an environment where the traditional business model of reinsurers is under pressure both regarding revenues and profits.

Pressure is particularly high in the broker-dominated North American market, he says, where because of the similarity of the solutions, cedants are focusing on price.

“Many customers just don't see the differentiation anymore," said Reber. "Customer expectations for all of those commodity covers are that they are just to get a simple solution for them that doesn't cost them a lot of money."

For reinsurers, the situation worsens further with increasing consolidation in the insurance market, he suggested. Larger insurance groups can keep more risk in-house and have to buy less reinsurance.

In addition, a highly commoditised market is attracting alternative forms of capital. The solution for reinsurers is to innovate and differentiate themselves from competitors.

For a wider view of what reinsurers need to do and are doing to adapt to the changing environment, please click  here.

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