Reinsurance Explained: Why Global Disasters Can Impact Your Local Insurance Premiums
You may have seen headlines recently about devastating hurricanes in the United States, floods in Europe, wildfires in Canada, or tropical cyclones in Australia — and wondered, what does that have to do with my insurance here in New Zealand?
The answer lies in a key concept often behind the scenes but has a big impact: reinsurance.
At Frank, we believe in informing our clients about the forces shaping insurance pricing and availability. Understanding how reinsurance works helps explain why your premium may change — even if your business or property hasn’t had a claim.
What Is Reinsurance?
Reinsurance is insurance for insurance companies.
Just as you insure your assets to protect against major losses, insurers do the same — transferring part of their risk to other insurers or, more commonly, reinsurers. The spreading of exposure allows them to remain financially strong even after large-scale disasters and continue to provide cover to businesses and individuals.
In short, reinsurance:
Helps spread the risk globally
Limits individual insurers’ financial exposure to large and catastrophic events
Enables insurers to offer broader cover and take on more clients
Protects the financial stability of the insurance sector
Without it, local insurers would be much more vulnerable to significant events — and premiums would be even more volatile.
How Global Disasters Create Local Flow-On Effects
Reinsurance operates globally, and so do the events that affect it.
In recent years, global reinsurers have faced a wave of costly natural disasters — from Hurricane Ian in the United States, which caused over $100 billion in damages, to devastating floods across Germany and Belgium. Canada has seen increasingly destructive wildfire seasons, while closer to home, Cyclone Gabrielle caused significant damage across New Zealand. Australia has also been hit hard, with Cyclones Ilsa, Jasper, and most recently Cyclone Alfred adding to the growing pressure on the global reinsurance market. These large-scale events result in higher reinsurance costs for insurers, which ultimately flow through to local insurance premiums and policy conditions — even in regions not directly affected by the disasters.
When global reinsurers face a surge in payouts, they respond by increasing their premiums and tightening the conditions for the insurers they support. Those higher costs flow through to local insurers when they renew their reinsurance contracts — usually annually — and ultimately impact you, the policyholder.
What Does This Mean for You?
While it may feel unfair to see premiums rise even when your risk hasn’t changed, insurance is part of a globally interconnected system. The cost of your insurance is influenced by events on the other side of the world, not just local claims.
As brokers, we understand how challenging this can be, particularly when managing tight budgets. That’s why at Frank, we work hard to keep you informed about market trends, proactively engage with insurers to negotiate the best possible terms and help you manage your risk profile, which can positively influence pricing and availability.
Looking Forward
Global reinsurance markets remain under pressure, with climate change, inflation, and increased asset values all contributing to more frequent and expensive claims. While insurers and reinsurers are adapting, we expect pricing to remain elevated in many sectors.
A strong risk management strategy and expert broking support are the best way to navigate this environment. If you’d like to understand better how your policy is affected or want to explore options to reduce your exposure, our team is here to help.
Have questions or want to review your cover?
Get in touch with your broker at Frank Risk Management — we’re here to help you stay protected, informed, and confident in a changing insurance landscape.
