Sept. 17, 2020
Many insurers of all types and sizes have come to rely on reinsurance as a tool to help grow their businesses or protect their balance sheets against unforeseen events. For that reason, reinsurance administration is essential to maximizing the benefits of reinsurance and ensuring confidence in the solvency of the business. Yet the systems that drive their workflows and enable consistent, high-quality outcomes are proving themselves to be antiquated and in need of investment and modernization.
Legacy reinsurance management systems built on COBOL or relying on Microsoft Excel/Access can’t support increasingly complex reinsurance arrangements and require manual, labor-intensive work that is prone to errors. It’s no wonder that 62% of senior executives responsible for ceded reinsurance activities cited operations as the area they struggle with most (
Deloitte, 2020). The cost of these struggles can come in many forms including financial (missed recoverables), opportunities (inability to perform value-added work), and reputational (poor relationships with reinsurers).
Regardless of the type of software being used, here are some indicators that your reinsurance operations are struggling with inefficiencies:
- Audit issues. Audits can come in many forms. From internal teams that review claims and treaties or reinsurers who want to verify billing accuracy, failed audits highlight an over-reliance on manual processes, which can break down in moments of high stress like natural disasters.
- Regulatory concerns. Regulators in the U.S. aim to ensure that insurers are financially healthy, and as part of that mandate, they monitor reinsurance transactions. When a carrier fails to collect recoverables on time, regulators can impose penalties. With an effective reinsurance management system, these types of fines should be unnecessary, as accurate bills are produced on time.
- Retiring experts. Many reinsurance accounting teams are made up of an individual or a handful of individuals who have accumulated critical knowledge on how their reinsurance contracts work and how to process them. Unfortunately, when these experts approach retirement age, insurers find that little or none of that knowledge has been documented for successors to leverage as best practices.
The natural question then becomes: what does an effective reinsurance operation look like? Here are some key principles to think about:
- Automate as much as possible. The goal of automation is to allow people to create efficiencies and improve the accuracy of outcomes. Activities like attaching policies and claims to contracts, performing cession calculations, and preparing bills should be automated – following business rules – so that they are completed with speed and the opportunity for human error is minimized.
- Audit-proof your business. Create transparency with a fully documented audit log detailing data and transactions that take place so that regulators and reinsurers can look back and be informed about how your reinsurance operation works.
- Identify actionable insights. With the first two principles in place, a reinsurance team will have more bandwidth to perform other value-added activities such as leveraging cession data to make better decisions and improve processes. This can enable your team to determine amounts a reinsurer owes for specific claim(s) or to analyze the performance of a new treaty.
A modern reinsurance management system is built following these principles and helps reinsurance teams resolve many of the challenges I’ve highlighted, while also being flexible enough to evolve with your business over time. Your goal must always be to help insurers improve and modernize their reinsurance system operations while identifying significant amounts of actual and potential claims leakage.
