Why Reinsurance is the Unsung Hero of Consumer Protection

Emeka Akwiwu, Group Executive Director, Continental Reinsurance Plc. Image Credit: Edelman

February 27, 2024/Edelman

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.

Emeka Akwiwu, Group Executive Director, Continental Reinsurance Plc

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