Missing Millions: Is Your Ceded Reinsurance Hiding Unclaimed Recoverables?

Ceded reinsurance is worth over $200 billion globally – yet too many insurers have relegated this important function to the back office where manual systems are still the norm. However, astute insurers that have automated manual processes are starting to enjoy unexpected benefits, including discovering missing millions among historic claims and policies.

In a market awash with talk of modernizing claims and underwriting, less than 10% of insurers have deployed a vendor software solution for ceding. But hidden away in manual spreadsheets and filing cabinets potentially hides significant worth in unidentified recoverables – oversights that often run into the millions.

The missing business case

Why the latency with automating reinsurance?  It’s simply because the business case doesn’t exist – the ROI is elusive unless proven by automation, and therein lies the issue. Despite the lack of justification however, many insurers with new core systems are realizing secondary benefits from their investment by also automating reinsurance processes.

Not only are they plugging reinsurance leakages for the future, they are able to take a look back in time and run automated processes on historically manual data. And what’s emerging is encouraging:

  • Previously unidentified facultative recoveries: Firms are identifying aggregated claims previously unidentified by manual methods, often facilitating collection years after a claim occurred.
  • Over-ceded premiums: While implementing premiums recalculated over years of history, companies are identifying hundreds of thousands of dollars’ worth in over-ceded premiums.

Recovery of Salvage

By identifying commutations and preventing cessions, firms are finding huge amounts of previously overlooked salvage recoverables.

Other indirect financial benefits are also being realized:

  • Schedule F streamlining
    By integrating data from processing systems, finance staff are able to prepare annual statements with significantly less manual intervention.
  • Letters of Credit
    Automation also enables the identification and tracking of Letters of Credit to secure unauthorized reinsurers’ obligations, effectively reducing Schedule F penalties.
  • Liquidation Awareness
    System functionality has facilitated the identification of reinsurers in liquidation and enabled firms to ‘write-off’ strategic project obligations, reducing their corporate tax liability.
  • Workforce efficiencies
    By reducing time-consuming manual processes firms are realizing productivity gains to enable the reallocation or streamlining of staff.

How to discover missing recoverables

In a market where claims are complex and drawn out over a number of years, automating the reinsurance process is relatively easy within modern core systems:

  • Looking back: Any amount of historical transactions can be fed into the calculation engine, with some companies running claims and policies up to five years old.
  • Running checks: “Cession” calculation engines inherent in vendor software interrogate policy and claims transactions to determine if any of it cedes to any part of the arrangements in place with reinsurers.
  • Spotting discrepancies: Results and audit trails from the calculation engine are reconciled with the results the company actual booked at the time to determine what did and didn’t attach, highlighting the value of any differences.

Head straight to the bank?

So what happens when a new insurance system identifies valuable recoverables? There is no set answer. It really depends on the company’s reinsurer relationships, the amounts involved and how far back the data goes. The automation of reinsurance doesn’t command the attention and investment that many client-facing initiatives do, but insurers are starting to notice that if they prioritize automation, hindsight can be a powerful tool that enables significant financial gains.

Craig Robinson // Craig Robinson, head of business development in North America for Xuber, has a proven track record selling technology solutions in the insurance/reinsurance arena. His career to date has included roles with StoneRiver, Sherwood International/Sunguard and ReCapital, General and National Reinsurance companies. With over 30 years’ experience in the reinsurance software market, Craig has been instrumental in helping companies extend their market penetration and drive revenue. Craig has held leadership roles in Marketing, Sales and Project Management. Craig joined Xuber in August 2013. His business development responsibilities include pre-sales, partner relationships and support for product development.

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