Why Have Recent Years Made Modernising Reinsurance Platforms Inevitable?

Patrick Nobbs

The recent years have witnessed some major disruptive forces that will forever change the reinsurance market: climate change resulting in a surge of natural catastrophes, and COVID-19. Natural catastrophes and COVID-19 have set gears in motion, leaving the world in a frantic chase to step-up and meet these great forces head-on.

Both issues are not new. Climate change has been a concern for over 40 years and has recently pivoted to a point of globally impacting our daily lives
and can no longer be ignored.

According to NOAA’s temperature measurements, 2020 was the second warmest year on record and the 10 warmest years on record occurred since 2005[1]. As a result, we have witnessed a dramatic increase in natural catastrophes with tropical cyclones, droughts, floods and fires leading the list with insured natural catastrophe losses exceeded $100 billion in 2021 and have now surpassed $450 billion in aggregate since 2017[2].

Flood events in Europe alone (July 2021) brought losses to nearly USD 25 billion, making it the most expensive weather event in European history.[3]

Each of these events were accompanied by secondary events, with high frequency and low to medium severity, constituting 71% of insured losses related to natural catastrophes with the costliest being severe convective storms and wildfires.[4]

As a result, some property reinsurance rates in Europe were raised by 50%. Reinsurance rates in Germany were raised by 15%-50%, Switzerland 20%-50% and in the USA 10%-25%. Global average property catastrophe reinsurance rose by 10.8%.[5]

The below chart shows that most of these events (70% in the last 20 years) have been more severe due to climate change.

Regarding the second disruptive force, COVID-19 has significantly impacted the market with a staggering number of insurance claims due to the pandemic. When it comes to the life insurance market, COVID-19 has increased life insurance purchases by 32%[6]. On the property and casualty front, the American P&C Insurance Association forecasts that COVID-19 claims will reach $ 1 Trillion a month[7].According to Willis Towers Watson 2020 research overview of reinsurance losses across multiple aspects in US and UK[8]:

Worker’s compensation will probably suffer a hard hit:

As a result of the above disruptive forces over such a short period of time, and the impact of increased claims – both in volume and value, it is imperative to properly manage the recoveries from reinsurance contracts. Incorrect claims recoveries will result in a new magnitude of financial losses to a carrier’s bottom line. Insurance companies are, therefore, at a critical point where modernizing reinsurance platforms is crucial.

In our follow-up articles, we will focus on the following top 5 pillars and how modernizing the reinsurance platform minimizes the potential financial damage to corporate bottom-line results.

  1. Manual Processes

Currently, in the insurance industry, many carriers manage their reinsurance activity manually i.e. via spreadsheets or utilizing legacy systems with limited functionality. This situation results from a variety of reasons e.g. refrainment from investing resources required for digital transformation, low priority, and more. Obviously, manual handling of huge amounts and complex calculations is prone, to human error.

  1. Human Error

As mentioned above, with reinsurance claims/events being subject to manual handling, the range for human error becomes significant. Here are some common errors:

1) A claim is not allocated to reinsurance contract(s), or the claim is allocated to certain reinsurance contracts, but not to all contracts

2) A claim is allocated incorrectly to reinsurance contracts and consequently wrongly recovered

3) A claim recovery is allocated to reinsurance contracts, but calculated incorrectly

4) Claims accounting and technical billing are poorly handled, resulting in late – or missed – recoveries.

  1. Process

As reinsurance programs are becoming more and more sophisticated so are the complexities of each process. A reinsurance program can consist of a mix of proportional and XL treaties, including facultative protection, with various layers and attachment points, inuring rules and terms and conditions. Complex processes are difficult to maintain, resulting in vulnerability and inaccuracy. It is inevitable that reinsurance processes need to be comprehensive, covering all aspects and calculations of the reinsurance program.

  1. Data Granularity & Control

All transaction information must be detailed clearly within a policy/claim transaction to ensure visibility and accuracy; lack of policy & claims information is an additional source of error and ultimate exposure for calculation accuracy and claims leakage. With such vast amounts of data, full control can only be achieved with proper data management and and appropriate tools.

  1. Integration

Improper interfaces between reinsurance and policy,claim and accounting modules can result in faults and latency in the premium handling, producing statements and bordereaux and claims billing. Creating a clear a seamless digital straight-through process is the only way to achieve proper results.

Stay tuned for Sapiens follow up articles on “Why the Recent  Years Have Made Modernizing Reinsurance Platforms Inevitable?”



[1] Climate Change: Global Temperature

[2] Climate change making peak peril distinctions irrelevant: Howden

[3] Impact of climate change on reinsurance

[4] Impact of climate change on reinsurance

[5] Some European reinsurance rates rise by over 50% at Jan 2022 renewals

[6] The COVID-19 Effect: High Tech With Human Touch to Optimize Life Insurance Customer Experience

[7] Forrester’s 2021 predictions: Claim leakage top carrier concern | PropertyCasualty360

[8] The impact of COVID-19 on U.S. insurers and reinsurers a year on

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