Capital efficiency, standardisation, securitization can reduce costs, increase relevance: Bain & Co

The global insurance and reinsurance market may be seeing improved profitability and premium growth, but global consultancy Bain & Company believes gains are “largely cyclical and mask unresolved challenges” while the future winners are expected to be those that lower the cost of risk and expand access to coverage.

In a wide-ranging report, Bain & Company’s consultants explain that lower-cost and efficient capital is one of the keys to driving real and sustainable gains in a world where incumbents are being threatened.

In addition, standardisation is seen as one way to drive greater uptake of insurance securitization, which Bain & Co’s consultants see as a way to drive a lower-cost of capital through the insurance and reinsurance industry, to enable market participants to do more with greater capital efficiency.

Bain & Co has previously cited insurance-linked securities (ILS) as a potential area of growth in finance that could “proliferate” as the world deals with a scenario where demand for investment surges, but supply and mobility slows down.

The consultancy said that in a turbulent global macro environment, financial capital flows, how capital moves and where to, are destined to change.

In a new report, specifically focused on global insurance and reinsurance market participants and opportunities, Bain & Co’s consultants explain that despite the industry’s strong 2025, this “is not a reliable indicator of its long-term health.”

Adding that, “Structural challenges around affordability and access, limited economic payoffs from technology investment, and competition across the insurance value chain remain unresolved and could limit future growth.”

Lowering the cost of risk is seen as key and within this reducing the cost-of-capital and enhancing its efficiency.

“Insurers should enjoy today’s momentum – but they should not mistake it for structural advantage,” Andrew Schwedel, partner in Bain & Company’s global Financial Services practice said. “The industry’s next phase of value creation will depend on whether insurers can lower the cost of risk, by preventing losses, expanding access to advice and coverage, improving productivity with AI, and using capital more efficiently. Those that do will be better positioned to improve affordability, close protection gaps, and create more durable value.”

Affordability of coverage is holding the insurance industry back Bain says, with the multi-year hard market one driver of that.

At the same time, protection gaps are persistent and underscore the opportunity to expand coverage by making insurance products more affordable.

While the sector is investing heavily in technology and artificial intelligence (AI), Bain says “these investments have not yet delivered meaningful operating leverage at the industry level.”

While the consultant also sees the insurance value-chain as becoming more fragmented, rather than less.

Cautioning insurers on this, Bain explains that, “Reinsurance continues to outgrow the broader industry, with 28% premium growth from 2019 through 2024, including sidecars and insurance-linked securities, compared with 24% for the industry overall.

“As the insurance value chain becomes more fragmented, traditional integrated carriers can no longer assume they will retain the industry’s most attractive profit pools.”

As a result, the consultancy sees lowering the cost of risk as “the new basis for competition” in insurance.

“Lowering the cost of risk will be critical for insurers seeking to increase relevance and expand the market,” Bain says, with four key levers available being claims, distribution, operating expenses, and capital.

In capital specifically, Bain believes that “greater standardisation could attract new sources of investment and expand insurance capacity.”

There is a need to evolve by turning capital innovation, alongside modernised technology and distribution models, into structurally lower cost of risk and superior long-term value creation, Bain explained.

Catastrophe bonds are one area that help to increase capacity and de-risk, while on the life side asset manager appetite to pursue insurance balance-sheets is another area of capital relief opportunity for insurers.

Advances in data, technology and analytics can also help to drive greater adoption of alternative capital, Bain’s report suggests.

While the consultants write that, “The rise of securitization over the past 50 years helped transform lending into an investable asset class. Today, investors increasingly seek access to insurance as a source of uncorrelated yield, but insurance securitization markets remain small despite more capital flowing into reinsurance sidecars.

“Increased standardization would help bring new capital into the market and enable better matching of risks with the appropriate owners.”

Alternative capital use in insurance and reinsurance is seen as one of the key opportunities for carriers to reduce their costs, improve their margins, pass along savings to customers and invest in features and offerings to create more value for their end-users.

Bain & Co’s consultants admit their thinking is speculative, but it aligns with many of the trends seen in how alternative capital has broken down some barriers in re/insurance and in some cases also shortened the chain between the original risk and capital required to bear it.

Their analysis speaks to the need for greater capital efficiency, increased use of capital markets techniques such as securitization and through technology and new business models, the development of a more fluid and efficient chain for risk to flow along within the industry.

Bain & Co’s team do not believe all incumbents will win, as business and sector models evolve.

Structuring and securitization are seen as tools that could deepen the convergence market within insurance and reinsurance, raising a question of whether it will be incumbents or asset managers that lead the charge as well.

There’s also a further question as to which actor in the market chain can control the flow of risk and distribute the securitizations most effectively, meaning whether it will be originators such as brokers or a more MGA type model, or a traditional balance-sheet that can capture the lions share of the economics that evolved re/insurance business models might reap.

“The industry posted a good year in 2025. Now the question is which companies will turn today’s momentum into structurally better economics and durable long-term advantage,” the consultants concluded.

It seems Bain’s consultant team stick with their previous view point, that access to alternative sources of capital and the use of insurance-linked securities (ILS) are a key factor for insurers to consider as they look for success in what the company called “a radically different future.”