With P&C insurance premiums rising rapidly over the last two decade and an increasing proportion of the risk finding its way down the market chain to reinsurance and retrocessional sources of capital, Jérôme Jean Haegeli, Group Chief Economist at Swiss Re said the industry has experienced a renaissance.Speaking yesterday in Monte Carlo at a media event to announce Swiss Re’s latest sigma report, Haegeli also highlighted the importance of efficiency in the risk transfer chain which is increasing, but said that not all parties are passing that benefit on to the policyholder.The new sigma report .It also explains that the capital markets and investors are now key elements in a chain that is supporting growing volumes of global risks.

This modernised risk transfer infrastructure has been required to absorb growing risks in many classes of insurance business and Haegeli said the risk build-up is expected to continue, while the world remains exceptionally volatile, all of which means this is a time for risk transfer to shine.Haegeli said, “There’s a renaissance.A renaissance of risk transfer, a renaissance of capital.

This renaissance of capital is here to stay.” He explained that the “shift to capitalised structures won’t stop”, it is expected to continue.Adding, “But the trend will be more towards where the real capital is, the risk-bearing capital, and that is important for the system.” Haegeli and Swiss Re sees the role of the capital markets as a critical one, in helping the insurance and reinsurance industry do more.Alongside technology and structuring innovation, capital has also helped the industry to enhance its efficiency, something Haegeli and the Swiss Re Institute team he leads see as having a meaningful benefit to the industry.

In the P&C market chain, Swiss Re estimates that insurance carriers have improved their efficiency by 3 percentage points of premium in the last decade alone, resulting in around US $30 billion per-annum in benefits being passed on to consumers.However, Haegeli also highlighted that over the same period, brokers have been far more profitable than insurance and reinsurance firms, with their profits consistently exceeding cost of capital.Here, Haegeli highlighted that while re/insurance carriers have passed on their efficiency gains to consumers, he does not believe that brokers have done the same.

“Yes, you have efficiency gains in the system.They are where the traditional carriers are, not where the brokers are,” Haegeli said.“Now, this is not to say that brokers have become very inefficient.

No, brokers also provide additional services.This could be additional modelling capacities, also with additional data analytics.“Can this continue to be like that? Where you have the traditional carriers doing efficiency gains, and brokers not? I doubt it.” It suggests a certain tension between reinsurance carriers and brokers continues to exist in the market and could come to the fore once again around efficiency this time.

It is true though that, given the location in the chain where brokers sit and the number of touch-points they can have on a risk as it travels along it, there is much greater opportunity to increase margins and revenue without passing those benefits along.Carriers seem to pass on most efficiency gains through the cost of coverage and in the claims process as well, where they have direct consumer touchpoints, while reinsurers are providing the capital to back that up.It would be nice to think that more efficiency gains are soon to come, with the embrace of AI beginning in the industry.

But whether these will flow evenly from the different actors in the insurance and reinsurance market to the policyholders remains to be seen.What’s clear though, is that advanced risk transfer techniques and new capital sources have helped to transform this industry, delivering the renaissance Haegeli refers to.It’s going to be interesting to see how long a risk transfer renaissance period lasts, or whether competitive tendencies drive pricing and terms back into the middle ages..

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