The insurance market is set to maintain rapid growth in 2023 and into 2024, but the industry also faces greater complexity, according to a new report from Koning.

The report, authored by Stephen Weberson (pictured above), managing director of Koning’s Insurance Research unit, highlights that direct insurance businesses are becoming more challenging to manage and analyse due to several factors.

These challenges include increased reliance on reinsurance, reliance on multiple third parties, a shift towards retaining higher premium rates, and increased need for capital.

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While insurers are maturing and showing improved earnings, they are also struggling with high leverage, Weberson noted. Many companies continue to focus heavily on their customers and reinsurance partners.

The report examines the use of reinsurance and the role of key trading partners, noting that front companies are benefiting from strong reinsurance support and becoming more important to reinsurers.

Mergers and acquisitions within the interface sector appear to have stalled, possibly due to the valuation gap between buyers and sellers and a more stringent due diligence process.

Weberson said front companies have been able to grow at a rapid pace, driven in part by the growth of the primary managing general agent market. However, he cautioned that the spread of fronting could slow, potentially leading to market consolidation.

Factors affecting the market

The motor insurance sector has been affected by a variety of factors, both positive and negative. The market has largely weathered the fallout from the Visto incident last year and continues to see strong growth in premiums.

According to Koning, premiums written will exceed $15 billion in 2023, representing a 27% increase. The actual market size is likely to be larger, as some participants do not disclose premiums written. This growth is supported by trends in the core MGA market, demand for capacity, and strong growth in surplus and excess lines.

Read more: What are the benefits of the hybrid interface model – and where is it headed next?

The auto insurance market is also heavily supported by over 200 reinsurers. The relationship between auto insurers and reinsurers is mutually beneficial, with reinsurers providing the backbone capacity while the growing auto insurance market becomes increasingly important to them. In 2023, the auto insurance industry ceded over $11 billion in premiums to unaffiliated reinsurers, with further growth expected in 2024.

This business model is particularly attractive to reinsurers because it primarily involves specialty insurance premiums for small and medium-sized companies, which are difficult to obtain elsewhere and generally lack significant exposure to catastrophes.

The corporate insurance model has evolved, with companies retaining more premiums as reinsurers seek greater consistency. This has led to more complex retention strategies, including the use of subsidiaries and third-party companies, as well as redistribution programs to support corporate retention levels.

The overall health of the auto insurance market presents a mixed picture. While many auto insurers are improving their profits and growing their capital bases as they reduce program concentration, leverage is also increasing intentionally, along with premium retention. However, since most premiums are “new business,” the loss experience remains relatively untested.

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