The reinsurance market trends and their impact on associations
Dania Beach, Fla. (August 18, 2023) — The reinsurance market trends and their impact on associations: FirstService Financial’s Sean Kent in a conversation with the New York Times
How a Small Group of Firms Changed the Math for Insuring Against Natural Disasters
Climate change, inflation and global instability have thrust companies that sell insurance to insurers into the spotlight.
As disasters like the wildfires that devastated the Hawaiian town of Lahaina and the storms that tore apart roofs from Alabama to Massachusetts last week intensify, insurance companies have pulled back from offering coverage in certain areas or cut the kinds of damage they will pay to repair. A little-noticed slice of the financial industry that provides insurance to insurers, called reinsurance, has helped drive the changes.
These companies promise to step in with cash — usually huge amounts — when something like a hurricane, wildfire or other big disaster creates damage that is too costly and widespread for insurance companies to pay for on their own. And at the beginning of the year, nearly all of them raised prices. In the weeks leading up to Jan. 1, when about half of reinsurance policies are renewed for the year, reinsurers broke the news to insurance companies across the United States and Canada — from large national carriers like State Farm and Farmers to smaller, more specialized firms — that their prices were going up. That led to a flurry of tense negotiations between those insurers and firms, like Swiss Re, Odyssey Re and other reinsurers, many of whom are headquartered outside of the United States.
Reinsurers have lost money over the last four or five years as they competed to offer the best terms to customers, said Franklin Nutter, president of the Reinsurance Association of America, the industry’s trade group. But late last year, they decided competing this way wasn’t worth the cost.
“The reinsurance community at large essentially decided we need a reset,” said Sean Kent, an insurance broker for FirstService Financial, who helps big housing developments find property insurance policies. “It was the most volatile of any reinsurance renewal date in decades.” Reinsurers’ increased prices have accelerated changes in an industry grappling with a new sense of uncertainty.
The world is warming; storms are getting more intense; inflation has increased the cost of rebuilding after a disaster; and a global increase in interest rates is making money itself more expensive. Since the beginning of the year, insurance companies have paid out $40 billion to U.S. customers, putting them on track for another record in yearly losses. At every level, the costs of guarding against risk are rising and everyone, from the leaders of large companies to the owners of homes and small businesses, is feeling the squeeze.
“If you’re a C.E.O. or C.F.O. of a mid-market company — we’re talking about a 500-unit townhome community in Minnesota — they’re talking about reinsurance and the impact that reinsurance has on their bottom line and their profitability,” Mr. Kent said.
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