An effective reinsurance program is paramount to an insurer’s success. Reinsurance is often one of the single largest expenses and insurer has. Despite its importance, many insurers still manage their reinsurance programs using legacy technology or Excel spreadsheets. In fact, a recent article from Deloitte indicates that over the last decade, there has been minimal investment in the technology, processes, data quality and analytics required for optimal management of reinsurance programs and strategies.

A complex relationship

The relationships between reinsurer and insurer have always been complex. Sometimes, the reinsurers hold the upper hand, while at other times, insurers are in the lead. A variety of factors both internal and external to the industry often play a role.  For example, hurricane Katrina and the events of 9/11 have both had a negative impact on the reinsurance premiums, giving reinsurers the upper hand.

Much attention is given to property lines: as up till now, this is the market most dramatically affected by natural catastrophes.  But as the liability crisis and COVID-19 have shown, casualty lines of business cannot be ignored.  Indeed, as the pandemic affects casualty lines more than it does property lines, the question of reserves takes on an even greater urgency.

In a complex market

Reinsurance programs can be multifaceted – consisting of various contract types, multiple layers and attachment points, and various terms and conditions. The sheer intricacy of the program creates great difficulty when trying to manage your company’s exposure to reinsurance, and provide reliable information for operational reporting, decision making, management information and regulatory reports – both inwards and outwards.

Of course, in multinational companies, whose subsidiaries often reinsure one another, the complexity can reach a whole new level.

In the 25 years since the debut of natural catastrophe modeling on the insurance stage, many modeling tools have been introduced:  casualty models for liability/long-tail lines of business, capital models, pandemic models, and new disciplines, such as Data Science to mine Big Data, and new capabilities and platforms. There are also numerous third-party data aggregators, dedicated to the insurance industry, which reinsurers with powerful technologies and fresh ideas could harness and potentially “know” the cedent’s portfolio better than the cedent itself.

read more about how to prevent reinsurance leakage

COVID-19 and Reinsurance

The effects of COVID-19 on the reinsurance market are far from clear. The COVID-19 pandemic certainly compounded losses for reinsurers in 2020. Each of the three largest reinsurers: Lloyds, Munich Re and Swiss Re estimate their own COVID-19 related losses in the billions of dollars. According to these insurers, industry losses are expected to reach $100 million or more.  Additionally, Stephen Catlin, Chairman and CEO of Convex, estimates COVID -19 losses will take at least 5 years to develop.

The effects of COVID-19 are beyond the traditional, and may encompass workers’ compensation, medical professional liability, and even business continuity. Willis Re representative notes: ‘We have not yet seen much in the way of liability claims being advised, so none are yet in the courts. The question of judicial decisions, with many courts still closed, could take some time to pan out.

Clearly, increasing weather fluctuations and extreme weather conditions due to global warming and other phenomenon are placing ever greater pressure on property insurers and likely to impact reinsurance strategies in the coming years.

Careful management of Reinsurance

In a fast-moving world, made more difficult with low technology spend, layered relationships and an ambiguous future, makes the task of managing reinsurance even more important for businesses. In a prior white paper, we described the issue of leakage, its impact on the organizations’ bottom line, as well as some steps insurers can take today to ensure that leakage is minimized. Importantly we describe some of the traditional causes of leakage, which include transgression in the following areas:

  • Claim allocation
  • Claim recovery
  • Claim billing

A key component is harnessing a comprehensive reinsurance management technology platform that enables overall management of the reinsurance program, including all types of contracts. The system must maintain the data items and business rules required for claims transaction allocations and ultimately provide comprehensive calculations, while taking into consideration terms and conditions, warranties, reinstatements, aggregates, events, limits of liability, currency management, and  supporting contract inuring rules. In today’s day and age, the flexibility of the systems in place and their ability to adjust to meet changing challenges is of utmost importance.

In a recent article, Novarica suggests a number of considerations when choosing a reinsurance management system. This includes the ability to differentially manage both ceded and assumed business, contract management and how reinsurance systems interact with other insurance systems to minimize the manual characteristic of reinsurance management. These capabilities are in line with some market trends sited by Deloitte.

What does 2021 have in store for the reinsurance market?

As uncertainty soars, so too does the uncertainty about the market. On one hand, the expectations of increased claims indicate growing proclivity for an increasingly hardened market in 2021. Originally, we saw estimations of rate hikes in the form of 5-10%. And yet, initial negotiations have come in a bit below original estimate.

2021 will no doubt be interesting to watch.

  • big data
  • COVID-19
  • data science
  • digital
  • digital technology
  • insurance
  • insurance software solutions
  • reinsurance
Sigal Biran Nagar

Sigal Biran Nagar Sigal was VP Marketing at Sapiens during 2020-2021, responsible for driving Sapiens marketing team globally. She is an accomplished global marketing and communications executive. Her background includes senior roles at various international conglomerates including: SanDisk (now Western Digital), Strauss, ECI Telecom (now Ribbon) and more.