In the cosy world of reinsurance brokers, building strong personal relationships is crucial. But when it comes to meeting the needs of cedants, what you know is just as important
Reinsurance brokers take note. Mutual trust, born of a commitment to maintaining a long-term relationship, is the main way to a cedant’s heart.
At least that’s the verdict of a snap Global Reinsurance straw poll of a group of insurers that cede through reinsurance brokers.
About half of all reinsurance is now handled by reinsurance brokers. But against the backdrop of recent consolidation among brokers in the sector, which has effectively reduced the choices available to cedants, and the improving fortunes of reinsurers, the market is changing.
So what do cedants really want from their reinsurance broker?
All the usual suspects were mentioned by the cedants Global Reinsurance spoke to – ability to place complex and specialised risks, speed of delivery – but as it turns out, cedants have a pretty diverse set of requirements for their ideal reinsurance broker. And more surprisingly perhaps (be still your broker hearts), fee levels hardly merited a mention.
In essence, two clear threads run through the requirements of cedants. The first is that despite the continuing demise of smaller reinsurance brokers as larger rivals tighten their grip on the market, old-fashioned personal relationships remain of paramount importance in the reinsurance industry.
“There is still a lot of face-to-face business in reinsurance,” Fortis underwriting director Adam Clarke says. “The reinsurance market is specialised and the reinsurance community is quite small. People tend to stay within it, so personal reputations are very important. And to have a broker that has a good solid reputation, one that has access to decision-makers and can negotiate on your behalf, makes a big difference.”
The second is that, in addition to the traditional role of placement, reinsurance brokers must now be able to double up as consultants and provide insurers with up-to-date market information and opinion through cutting-edge modelling and analysis.
“The added value that reinsurance brokers are able to offer in terms of modelling and research is important,” Allianz Commercial property and commercial reinsurance manager Peter Adlington says.
Indeed, for many cedants, catastrophe and capital modelling is now one of the main reasons for using a reinsurance broker.
For Aviva reinsurance director Mike Barber, the “added value” he expects from reinsurance brokers should include “market intelligence, market analysis, credit and security risk analysis, risk management and peer reviews”.
But what about those fees?
“Fees would be the last thing on our list,” Clarke insists. “Of course price is important but in reality fees are a much smaller part of the overall cost of the reinsurance programme. The ability of a reinsurance broker to work for you is far more important than fees.” GR
1. A longstanding relationship
“Reinsurance isn’t like M&A,” Fortis’s Adam Clarke says. “People working in it tend not to move around that frequently, so reinsurance tends to breed longer relationships and a lot of what you require comes from having a longstanding relationship.”
That viewpoint is echoed by Allianz Commercial property and commercial reinsurance manager Peter Adlington. “The crucial question,” he says, “is ‘can I work with this person and company? Are they an honest and trustworthy source that our business can have a long-term relationship with?’”
Longevity is also a factor for Groupama reinsurance manager Kelvin Phillips. “Our reinsurances must be placed with financially secure reinsurance brokers with whom we can build and maintain long-term relationships,” he says.
But the value of a long-term relationship is not just based on the probity and reputation of a broker. “You may get a claim 30 years after the policy has been placed,” Clarke says. “For example, our liability brokers Marsh and Guy Carpenter have had to trace policies as far back as 1968. In reality, they were paid for that work 40 years ago but are working very hard to find the records now and help us make the recoveries. So having a longstanding relationship with a broker, particularly for longer tail, is very important.”
Adlington agrees. “If I am looking to cede a long-tail account, I need to know they will they be around to collect the claims in 20 to 30 years time.”
2. Added value
Insurers may not be grumbling about fees, but they still expect reinsurance brokers to earn their cash by offering them a service that goes beyond mere placement. Both Adlington and Barber place a lot of emphasis on the added value that brokers are able to offer them in terms of modelling capability and research.
Barber says brokers should be able to design and propose “market-leading reinsurance solutions” to meet the specific needs of an insurer.
Phillips says brokers need to ensure they have a team available to work in all areas of the reinsurance process with insurers. “We need to always be able to access this team, and, whenever the need arises, be confident they will always go the extra mile for us in support of our business needs,” he says. “An all-round quality service should not just be limited to the placement of our reinsurances, but all of the support services that go behind this. A good reinsurance broker will recognise this, and ensure the right resources are dedicated to this area.”
Clarke agrees. “There’s an ongoing relationship with good brokers. Reinsurance placement could be a once-a-year type activity. All our placements happen in January, so we could have close links for December and January and not a lot for the rest of the year, so it’s important that brokers continue the relationship by building the knowledge of our teams and keeping us informed of emerging issues in the market. A good broker keeps you up to date.
“An example of that would be something like periodical payments, which are starting to become part of the business in the motor market. Reinsurance brokers help us work through the impact of things like that so we can place our programmes next year with that in mind.”
3. Transactional excellence and specialist knowledge
An in-depth bespoke knowledge on the part of brokers of the product classes they write, underpinned by an ability to execute and transact at the most efficient terms, came high on everyone’s list.
“To ensure we get that specialist knowledge, we have our property and motor classes with one broker and our liability class with another,” Clarke says.
Adlington follows a similar template, ensuring that brokers have a market presence and expertise in the lines of business that Allianz is interested in.
Moreover, he adds: “Do they have they an efficient back office? The best price and widest cover is no use if they can’t collect claims or pay reinsurers in time.
“Can the broker actually broke a risk or account? It’s easy for a broker to walk around the market with a slip, showing it to people just in case they are interested. We look for those who are purposeful and can put our proposition in the best light, and who will see and exploit any advantages.”
Aviva’s Barber echoes that view and says brokers should be able to display claims expertise and recovery management strength in-depth.
Phillips adds: “Their claims and credit control services need to be second to none, as ultimately this is what we buy our reinsurances for. This means that all of our claims are settled effectively and efficiently, even when these occur many years after the contract has been placed. Handling settlements with reinsurers that are in run-off can often be very difficult and time-consuming.”
4. Understand insurers’ business and strategy
“Brokers need to have an excellent understanding of our business,” Phillips says. “They must listen to our requirements and seek to find the best reinsurance solutions to fit our needs.”
His view is shared by Clarke. “A knowledge of our business is important. The world is a fast-changing place, new opportunities arise and some have implications for reinsurance. We need to be able to pick up the telephone, speak to a broker who understands the impacts of these things on our business and get a view on whether they can place a programme in the manner that we want to.”
5. Status in and knowledge of the reinsurance market
“A broker’s relationships in the reinsurance market are important,” Clarke says. “Again, this is still quite a personal business, whether that’s the cedant, the broker or the reinsurer, so it’s important to us when we’re choosing a reinsurance broker that they have intimate knowledge and the right contacts for the part of the market we’re looking to place on.”
Adlington puts it more candidly. “Do reinsurers respect them? Allianz looks for long-term relationships with its reinsurance brokers and would not want this to be jeopardised by its agents.”