Most insurers still rely on spreadsheets to manage their reinsurance business. According to a 2011 survey of property/casualty insurers, 60% of participants were using spreadsheets, and 7% were using other manual methods.
Surprisingly, 86% of companies with direct premiums over $1 billion did not have a reinsurance system in place. Using spreadsheets is so unwieldy, it’s not surprising insurers are losing money because they cannot track reinsurance contracts effectively.
They don’t have automated tools to effectively monitor reinsurance programs, placements or recoveries, let alone identify claims leakage, overpayments and excessive risk exposure or even track out-of-compliance reinsurance contracts.
The worst part is that very few are aware of the potential losses they face. Case in point: After recently implementing a reinsurance solution, a European client detected more than $1 million of overlooked claims; that alone paid for the whole system and some.
Why are carriers still making use of spreadsheets and manual processes? It’s probably because most think of reinsurance administration as an afterthought, possibly because it’s a back-office function that has always been dealt with manually. But manual processes no longer work.
Insurers traditionally have relied on experienced professionals adept at managing reinsurance using spreadsheets. However, according to the same survey, experienced reinsurance administrators are either retiring or leaving insurers.
Reinsurance is multifaceted, and less experienced people will need the features of a comprehensive system to help them deal with the complexity. Also, due to regulations and standards such as Solvency II, Sarbanes Oxley, International Financial Reporting Standards and others, insurers have to tighten up and document compliance. They’re left with no choice but to implement a full solution to manage the complex compliance processes they must institute. Insurers may not like being forced to do something.
But there’s a bright side. Implementing a solid solution will enable carriers to reap all the value a reinsurance system has to offer, including accurate claims identification, comprehensive management of aging recoverables and full compliance with current regulations. Other benefits include more effective business intelligence capabilities that provide timely, reliable and all-inclusive financial information for trends, profitability analysis and exposure, in addition to account balance, unearned premium reserve and claims reserve. But no reinsurance system will be the right choice for all carriers.
The right solution is the one that fully addresses a particular company’s unique needs. Besides evaluating functionality, insurers should ascertain that the system can easily interface with all existing applications. They should also find out how satisfied other insurers are with the overall platform and make sure the vendor is financially sound.
Using spreadsheets and manual processes is no longer sustainable. Reinsurance systems have matured and can now bring all the benefits of automation to this complex, vital area.