Why Reinsurance Is The Unsung Hero Of Consumer Protection

By Emeka Akwiwu, Group Executive Director, Continental Reinsurance Plc 

In the world of insurance, there’s a powerful yet often unseen force that plays a pivotal role in securing consumers’ financial wellbeing: reinsurance. At its core, reinsurance is a safeguard for insurance companies, allowing them to share and manage the risks they take on when insuring a client. It’s this layer of security that upholds the integrity of insurance policies, translating into more reliable and robust  protection for everyday consumers. 

Reinsurance is emerging as a critical tool for Africa’s insurance sector, representing not only a strategic  enhancement for insurance companies, but also signalling a new era of financial security and  empowerment for millions of Africans.  

With reinsurance, insurers are now better equipped to handle large-scale claims and offer more diverse  and affordable insurance products. In the African insurance landscape, characterised by economic  volatility, regulatory diversity, and climatic risks, reinsurance can be an asset for driving stability and  growth. 

This impact extends directly to individual consumers, manifesting in several tangible and significant  ways. Firstly, it enhances the reliability of insurance companies. When insurers are backed by  reinsurance, they possess a more robust capacity to handle large-scale claims. For the policyholder, this  means greater assurance that their claims will be honoured, especially in the face of catastrophic events  or widespread claims scenarios. Such assurance is crucial in building and maintaining trust between the  consumer and the insurer. 

While the media often highlights cases of insurance companies refusing claim payouts, these instances  represent a small minority overshadowed by the numerous claims settled efficiently, a reality largely  attributed to the strength of the reinsurance industry. With robust reinsurance backing, insurance  companies not only have enhanced financial capacity to honour claims, even in challenging times, but  also enjoy operational flexibility. This support enables quicker, often less bureaucratic claim settlements, ensuring operational continuity for insurers — metaphorically ‘keeping the lights on’. 

Reinsurance also helps keep insurance prices stable by spreading out the risk among many companies,  which makes it easier for insurers to handle the cost of claims. In African countries prone to extreme  weather events, like floods or storms, reinsurance assists insurance companies to manage the surge in  claims resulting from weather-related damages. By doing so, reinsurance prevents sudden and significant  hikes in insurance premiums after these major events. This ensures that insurance remains affordable for  consumers. 

Another key benefit for consumers is the broadening of insurance coverage options. Reinsurance enables  insurers to offer a wider range of products and coverages, some of which might be unfeasible without  the risk-spreading mechanism that reinsurance provides. For consumers, this means access to policies  that are more closely tailored to their specific needs and circumstances. Whether it’s coverage for  agricultural risks, property in areas prone to natural disasters, or specialised personal insurance  products, reinsurance plays a pivotal role in the availability and diversity of these offerings.

By incorporating these mechanisms, African insurers not only elevate their market standing but also  significantly contribute to the economic and social welfare of their policyholders. The strategic use of  reinsurance thus becomes a crucial element in fostering a more resilient and inclusive insurance  ecosystem across Africa. 

And insurance companies around the world are taking heed.  

Valued at US$389 billion in 2022, the global reinsurance market is on a trajectory of steady expansion,  with an expected compound annual growth rate (CAGR) of 4% from 2023 to 2033. Research indicates  that this growth is fuelled by the escalating demand for reinsurance, driven largely by the increasing  occurrence of catastrophic events and the constantly evolving risk landscape. 

Insurers are increasingly relying on reinsurers, like Continental Reinsurance in Africa, to bolster their  capacity for managing diverse and complex risks. Continental Reinsurance enhances the African  insurance landscape by offering services that address key industry needs. Its approach includes reducing  liquidity problems following major losses, creating more balanced risk portfolios through reinsurance of  high-value policies, and boosting underwriting capacity by sharing risks. Additionally, Continental  Reinsurance frees up equity capital previously tied to risks and improve operational effectiveness of  primary insurers with services such as risk assessment, loss prevention consulting, loss adjustment  support, actuarial work, and training for client staff, aligning with the evolving dynamics of the  reinsurance market. 

The strategic integration of services by companies like Continental Reinsurance exemplifies a significant  shift in the African insurance market towards enhanced risk management and customer service. This  shift underscores the essential role of reinsurance in not just bolstering the industry’s infrastructure but  also in actively shaping a more protected and service-oriented future for consumers. 

Beyond the tangible, practical benefits, the assurance of having a safety net, much like reinsurance  provides to insurance companies, instils a deep sense of confidence and trust. This peace of mind is a  crucial emotional benefit, particularly when considering that for many, the cost of insurance premiums is  comparable to everyday discretionary expenses, such as a new mobile phone or a pair of shoes. In this  light, reinsurance elevates insurance from a ‘nice-to-have’ to an ‘essential’ purchase, underscoring its  role not just in financial planning but in providing emotional security. 

As African insurance companies navigate through the complexities of their market, the astute application  of reinsurance stands as a key determinant in their success and the enduring protection of their consumers. 

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