Winning Reinsurance Negotiations in a “Show Don’t Tell” Hard Market

Steve McOrmond
March 15, 2023

In a hard market, a massive opportunity exists for those carriers and MGAs who can “show not tell” how they will perform against the plans they put forward to their reinsurance partners. In this article published by Carrier Management, William Ross, CEO & Co-Founder of Federato discusses how P&C insurance carriers and MGAs are achieving superior results at the reinsurance negotiation table through a technology-driven RiskOps approach. Based on feedback from our clients, Will shares the proactive steps you can take today to ensure you are well positioned for the next reinsurance conversation.

Coming off what have been called the toughest January renewals in a generation, we need to talk about the cost of reinsurance. As P&C insurers all scramble to compete for the same limited capacity, they face shrinking margins as the cost of reinsurance steadily rises. These costs are inevitably passed on to the insured. The problem is not so much how insurers are pricing risk but rather one of risk selection, Will Ross argues. 

“Reinsurers will continue to reward businesses that can consistently select risks based on the underlying distribution and exceedance probabilities to which their prices are set. When we talk to reinsurers and reinsurance brokers, we consistently hear that the promises made by carriers and MGAs to their upstream capacity providers are empty.”

– William Ross, CEO & Co-Founder, Federato

Insurers must have a strategy for maximizing their return on reinsurance, and must have strong portfolio management controls in place to demonstrate to reinsurers how they will meet their portfolio and business goals.

“While insurance is still relationship-based, the reality is reinsurers are data-driven entities, and in a world of failed promises, relationships alone are unlikely to earn an insurer the credit – or commissions – they believe they deserve. Insurers and MGAs who lead the charge on data-driven underwriting and portfolio management will inevitably have an edge in future reinsurance negotiations.”

– William Ross, CEO & Co-Founder, Federato

Key Takeaways

Ross identifies how intelligent, next-gen underwriting and portfolio management technologies can make a huge impact in reinsurance negotiations:  

  • Reinsurers want to see proof that insurers and MGAs have the processes and technology infrastructure in place to allow them to harness their specialty to scale and grow the business. 
  • Modern software systems leveraging an advanced data architecture and reinforcement learning-based AI give insurers and their reinsurance partners a more accurate and complete view of portfolio risk.
  • Such systems can proactively and in real time empower underwriters to play their part in balancing the portfolio, making course corrections on the fly and growing premiums in accordance with the company’s rate, retention and accumulation goals and strategies.
  • Promises stop being promises and start being code – hard and fast embedded portfolio controls that give reinsurers market confidence.

Clients tell us that they are actually showing the Federato RiskOps platform in meetings with reinsurers to demonstrate how they are operationalizing their portfolio strategy, balancing their book of business, and proactively tracking their progress to goals. This tangible and concrete proof of sophisticated portfolio management provides reinsurers with peace of mind and goes a long way to securing capacity under the best rates, terms and conditions.

Read the Full Article

For more insights on developing a winning strategy for maximizing capacity and return on reinsurance, read the full Carrier Management article here.


More on the topic

See more