High Distribution Costs and How to Fix Them

November 18, 2019 by David Flandro

The disruption currently taking place in insurance and reinsurance markets is at its most acute since the culmination of the financial crisis. Industry reserves, deteriorating earlier catastrophe losses and eye-popping expense ratios are combining with macro headwinds, changes in investor appetite and less predictable global capital flows. All of this is driving an increased focus on risk selection and cost of capital. The most visible result is a hardening of pricing across multiple business lines.

One of the factors increasing the cost of risk is rising broker commissions. The figures below show acquisition costs, net of reinsurance profit participations both at Lloyd’s and for the top 30 global carriers.