Tremor lifts lid on traditional market inefficiency in placement analysis

Price inflation is present and substantial across the board in the traditional market, even on programmes that start as short placements, according to insurance technology firm Tremor, which has used oversubscription on its placement platform to measure inefficiency in the market.

Tremor’s aggregate supply data allows the company to translate the amount of capacity reinsurers withhold into implied price hikes.

It found that if a broker can frequently fill a programme that was initially 85 percent placed, aggregate supply suggests that the reinsurers are commonly inflating their initial indication of supportable pricing by at least 7.6 percent on average. More generally, for realistic placement rates, Tremor found that, on average, reinsurers must be inflating prices by at least 5 percent-10 percent, maybe more.

“Programmes often start as a short placement, particularly in the current hardening market. On the surface, a short programme that ultimately fills sounds like a great deal. But if one digs a little deeper, things do not look so sunny,” said Tremor in a statement. “If a broker was able to convince reinsurers to provide more coverage in the end, it means the insurer wasn’t getting their best offers the first time around.”

Tremor said the market at large offers insight into how much capacity reinsurers typically withhold. For example, if a broker manages to fill a programme when initial authorisations only covered 85 percent, it’s clear that reinsurers were withholding at least 15 percent of what they could have authorized on a programme. Moreover, if brokers regularly fill programmes that are initially 85 percent placed, it indicates that under current market conditions, reinsurers are typically withholding at least 15 percent of what they could authorise.

“Even if a programme is not a short placement, this is often simply a signal that firm order terms were so high that a program filled in spite of the fact that reinsurers were withholding supply,” said Tremor.

Sean Bourgeois, founder & CEO of Tremor Technologies, added: “A traditional placement is simply a brokered negotiation, so you should fully expect reinsurers to have built additional margin into prices considered in their initial authorizations.

“In contrast, placements on Tremor leverage the latest smart market technology that prevents and penalizes this behaviour. Reinsurers are always allocated at the market clearing price, and those that do inflate pricing in their bids will ultimately lose out with smaller allocations.”