Time to Bring Reinsurance Management out of the Technology Dark Ages

(Visualization of Hurricane Floyd. Source: NASA.)

Insurance makes the financial world go ‘round, and reinsurance makes insurance possible. Without it, the insurance industry would grind to a halt. Given how indispensable reinsurance is, it’s an astonishing how little attention most insurance companies have paid to automating reinsurance.

Can you imagine an insurance company without a policy administration system? But, according to a recent survey, only 14 percent of primary carriers have a reinsurance system. Most insurers still use spreadsheets or other manual methods to keep track of their reinsurance.

Spreadsheets are great tools, but it’s easy to see why an Excel sheet is inadequate to manage something as complex as reinsurance. There are a mind-boggling number of moving parts that must be tracked. Fallible humans can easily let things fall between the cracks because there are innumerable “cracks.” Automating processes can reduce the chances of missing something to almost zero.

One of the biggest problems is claims leakage. How do you know when a reinsurer owes your company money? Answering that question is not as straightforward as it seems, given the complexity of many different types of reinsurance contracts.

And it’s not theoretical. After implementing a reinsurance solution, insurers have detected more than $1 million of overlooked claims.

The situation for insurers that don’t automate will only get worse. Many of the experienced reinsurance administrators have retired or will be retiring in the next few years, and there are few in the pipeline coming up.

Meanwhile, insurers must ramp up compliance. They must be able to document compliance with regulations and standards such as Solvency II or the forthcoming NAIC Risk Management and Own Risk and Solvency Assessment (RMORSA) Model Act, effective January 1, 2015. A key part of compliance is documenting their reinsurance coverage.

The only feasible answer for insurers is a comprehensive reinsurance system that puts everything in one place.

The Good News

Policy administration system replacement is most-often particularly demanding and lengthy. It stands to reason. With a new PAS, you’re cutting out the heart of the company, replacing with another, and reconnecting all the electronic arteries, veins and nerves.

On the other hand, installing a reinsurance system properly does take time and work, but it’s far less daunting than a PAS replacement. It’s a matter of months, not years.

The effort and cost are well worth the benefits in risk reduction, better claims tracking, and improved regulatory compliance.


(Related Content: Missing Millions: Is Your Ceded Reinsurance Hiding Unclaimed Recoverables?)

Joseph Sebbag // Joseph Sebbag is CEO of Effisoft USA, an international reinsurance software vendor based in Dallas. He was previously assistant vice president, reinsurance, at SCOR, where played a key role in the development of SCOR’s global reinsurance system. He can be reached at jsebbag@effisoft-group.com.

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