Reinsurers flex their muscle

Jeffrey Scott

The influence reinsurers have on the insurance industry could result in a global convergence in product design and pricing, according to an industry expert.

CommInsure business growth services executive manager Jeffrey Scott said with reinsurers actively involved in the underwriting process, they often had a direct influence on the pricing of products internationally.

“In the UK, Germany, and Australia, the maximum monthly sum insured were all approximately $25,000 per month after taking into account the percentage of income covered and currency exchange rates… The primary reason for this uniform amount, are the risk retention limits set by reinsurance companies that operate in all UK, Germany and Australia,” he said.

According to Scott, with reinsurers playing such a key role in the approval of insurance products and due to their global reach as huge international entities, often product features become replicated across different markets.

“There’s a copycat situation occurring … where you start seeing consistencies around the world as to policy design and also policy pricing. So if there’s a product design in South Africa you often see it here in Australia a couple years later.”

Scott stated that since “mortality and morbidity experience varies by country and the underlying assumptions used by the actuaries are specific to each country, the question is: is every market the same? Are the needs of an Australian the same as those of a South African? We should be able to make sure the policies are appropriate for the marketplace in which they are sold in.”

Zurich life risk operations manager Chris Rutherford pointed out that while reinsurers did influence pricing, it depended on the levels of retention provided by the insurer.

“If you come up with a new product or idea and are happy to wear all the risk then you don’t have to involve the reinsurer at all,” he said.

“What you’re doing is using them to spread your risk. So I don’t consider it a negative thing at all.”

RGA Reinsurance Company of Australia chief underwriter Peter Tilocca said ultimately the final decision in regards to which products to take to market rested with the insurer.

“It is the insurer that after analysis of the market, social and economic forces will place its brand on a product. If a product is unprofitable then it is both the insurer and reinsurer who should share the responsibility.”

Tilocca added that because of their presence in many insurance markets globally, reinsurers offered many positive elements in the product development process.

“As many of these products are new or variations on local products, the local insurer may have little or no experience in pricing this product. Reinsurers can provide the necessary sales, underwriting and claims data to launch successfully,” he said.

Both Tilocca and Scott agreed to ensure appropriately priced products, the reinsurer and insurer had to work together on various aspects of life insurance, whether that be underwriting, claims, actuarial pricing or product design.