Placing risk

Price and availability are at the core of any market, and reinsurance is no exception. The survey shows that price is still the biggest problem for risk managers and reinsurance buyers, even as the market is considered to be softening. Of the risk managers who responded to the survey, 59% of them cite it as the biggest problem when buying reinsurance, while 30% say availability and 33% say capacity. In the case of buyers, 63% cite price, 24% say availability and 22% say capacity.

Even more emphatic results come when respondents are asked to say in which lines they see price increases. Liability is cited by the highest number of both groups - 63% of buyers and 67% of managers. It is also the line that scores highly as the risk that is the hardest to reinsure.

The area of liability has been hit by several issues over the last year that would account for these difficulties. Directors' and officers' (D&O) liability coverage, for example, has seen the most dramatic price increases during the hard market. This is as a result of a combination of factors such as corporate scandals and terrorism risk. Risk managers in our survey cite D&O as the risk they are most concerned with (45%), but there is other evidence that prices in this area are softening. A survey of 1100 firms by the Risk and Insurance Management Society (Rims) shows that 61% of renewals were either flat or lower than last year.

Medical malpractice is another example of liability that has proved problematic across the globe. A report by Converium found that premiums have risen by as much as 134% in the last couple of years in the US, although there is a great deal of variation between states. In the UK, premiums have risen by 8% each year for the last year. In Australia, premiums have also risen steadily and some doctors have taken the decision to close their practices rather than pay the premiums.

Online trading

The survey brings into sharp focus the attitude of buyers and managers to the question of the online purchasing of reinsurance. Only 4% of managers and buyers either have bought in the past, or regularly buy, their reinsurance online. Furthermore, 26% of managers and 52% of buyers say they would never consider buying reinsurance online. Nonetheless, large numbers of respondents - 67% of managers and 42% of buyers - say they would consider such a purchase.

These results suggest there are two issues with electronic trading in the reinsurance market - one is perception and the other availability.

Speaking at the World Insurance Forum, Nicholas Michaelides, chief reinsurance officer for Ace Overseas General, said he found it "extraordinary that there is any resistance" to the concept of electronic trading. He considers that by ensuring that the offer and acceptance is binding, electronic processing can offer contract certainty. However, he also says that renewals in his company are not yet being tailored to the web, and paper packs continue to be used.

With a reinsurance buyer as large as Ace taking the electronic channel so seriously, it would seem a real momentum for change is gathering. However, signs of resistance are still evident. A report last month on the use of electronic processing in the London market by Dr Leslie Willcocks and Dr John Hindle found that: "Previous modernisation efforts have met with limited results and while the global insurance market continues to grow, the London market's share continued to fall through 2002, in the face of persistent unwillingness to adopt new ways of working."

Contract certainty, a verifiable audit trail and transparency have all been cited as reasons to buy into electronic trading, but it would seem from this survey that there is no 'burning platform' to force them forward.

Whether reinsurers on their own can make the proposition compelling enough to make the change seems unlikely. The indications are that while buyers and managers are ready and have made considerable investment in enabling technology, the connectivity with their trading partners is still not in place.

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