Study shows buyers anti to reinsurance adjustments

A Conning & Company reinsurance study concludes that buyers will not respond well to a general hardening of market rates. The study suggests that a reinsurance price increase will lead to a significant outflow of business from the traditional insurance sector to the alternative risk transfer market (ART).

Currently comprising about 35% of total commercial risks, growth in ART has been moderate over recent years, observes the study’s author Mary Ann Godbout, vice president of the research company. “The alternative markets took off in the mid-1980s when liability premium rates were sky-high and certain coverages were unavailable. When insurance prices start rising again — something customers have little tolerance for — the alternative markets will begin to capture even more of the traditional market. And, the lesson of the last decade is that when marketshare goes to the alternative markets, it is likely lost forever.”

The pressure of switching from traditional insurance to ART will be particularly felt in the small to mid-sized accounts, Godbout says. “These smaller accounts weren’t ready to make a move into alternative markets in the 1980s — but they are now.” Furthermore, she points out that the move by larger corporations into ART has provided a “working model” from which smaller companies can base their own foray into the field.