Persistent calls for rate changes driven by problems with products

There are fundamental flaws in the (re)insurance value chain because of inadequate pricing in primary insurance, according to participants of Global Reinsurance’s annual CEO breakfast roundtable.

The problem is particularly acute in liability. Investment income is a fundamental part of this business, and if yields are too low, premium rates need to rise to compensate. Failure to charge the right price is having repercussions for everyone involved in the risk transfer process.

Speaking at the roundtable this morning, Berkshire Hathaway managing director of international reinsurance Manfred Seitz said the change needed to be made in primary prices.

“Our business partners – primary companies – have to realise that there is a flaw in the product,” Seitz said. “The product is short in pricing when you look at liability policies. They have to beef up the pricing and it has to come through on the reinsurance side.”

Swiss Re China managing director Robert Wiest agreed. “Fundamentally we have a flaw in the whole value chain,” he said.

“Changes in reinsurance pricing is only one of the elements that some people in the food chain are screaming for. That is the battle cry we hear every year. It is a fundamental issue that derives from the construction of the underlying products.

“As long as this is not fixed, we will hear the battle cry that we need to reduce insurers’ costs and distribution costs. The whole value chain needs to slim down because the source is not really working.”