reinsurance trends: opportunities for the future · 4 •global research and strategy advisors...
Post on 23-May-2020
3 Views
Preview:
TRANSCRIPT
1 www.sapiens.com www.sapiens.com
Reinsurance Trends: Opportunities for the Future Karlyn Carnahan, CPCU Martin Greenberg, August 2014
2 www.sapiens.com
• Karlyn Carnahan is a Director in
Celent’s insurance practice focused on
issues related to insurance technology
strategy. She is widely published on
topics such as reinsurance policy
administration systems, rating, billing,
and distribution management and is a
widely recognized expert on these topics
who has written market leading reports
and presented at numerous conferences.
She joined Celent with an extensive
career in the insurance industry and
holds an MBA from Stanford Business
School and a Certified Property Casualty
Underwriter (CPCU) designation.
Reinsurance Trends: Opportunities for the Future
3 www.sapiens.com
• Martin Greenberg, the Reinsurance product
manager at Sapiens, possesses extensive
experience in IT development and
management, as well as in the insurance
business. Prior to joining Sapiens
International in January 2006, Martin was
deputy general manager at FIS Software for
over five years, managing the General
Insurance (P&C) product and global clients.
Martin previously held several managerial
positions at the Israel Phoenix Insurance
Group, including assistant general manager
and CIO of Hadar Insurance Company;
manager of IT development and systems at
City Fire Insurance Company, London; and
CEO of the Noga Insurance Company.
Reinsurance Trends: Opportunities for the Future
4 www.sapiens.com
• Global research and strategy advisors focused on financial services operations and technologies
• Insurance practice began in 2001
• Research focused on:
• Emerging trends
• Solution providers
• Peer group attitudes and behaviors
• Cross practice themes
• Division of Oliver Wyman, global financial services consulting firm
About Celent
Digital Legacy & Ecosystem
Transformation
Innovation & Emerging Technology
Data Mastery and Analytics
Implementation Best Practices
5 www.sapiens.com
Overview of the Reinsurance Market – Reinsurance Supply Increases Continue to Outpace Demand
• It’s a buyers market. Competition in the global reinsurance industry is fierce
• Global reinsurance rates continue to decline
• Excess capacity
• Loss activity remains low
• Alternative capital continues to enter the market.
• Terms and conditions for June and July renewals improved, continuing a trend from the beginning of the year.
• Private market renewals increased coverage and secured multi-year protection for portions of their reinsurance coverage.
• Insurers were able to secure more customized reinsurance protections
• Property catastrophe renewals saw movement in the terms (e.g. traditional reinstatements, occurrence definitions, and terrorism language)
6 www.sapiens.com
• The US marketplace is dominated by property catastrophe
• Overall cat losses in 2014 have been below normal.
• Probability of El Nino increased to 80% by fall.
• Below normal hurricane activity forecast for the 2014 Atlantic hurricane season.
• But we are still in hurricane season and it just takes one
• We are in a record-setting stretch without a major hurricane landfall (Category 3+).
• Carriers who retreated from catastrophe exposed coastal areas in the 1990’s are reassessing the potential opportunities
Overview of the Reinsurance Market – What about Catastrophes?
7 www.sapiens.com
More People Are Living In Coastal Regions
• 53% of the US population now lives in a coastal region
• The population living in coast regions continues to grow
• The value of the properties located in coastal regions continues to rise
• Limiting your appetite to non-coastal regions significantly reduces the potential market
• Regulators are charged with assuring access to insurance – will there be more laws, pools, etc requiring insurers participate? Maybe. Maybe not.
• With lower rates, governments are expecting to reduce their participation in catastrophe exposed regions as insurance availability and affordability improves.
9 www.sapiens.com
• The weather could continue to change • Continue along the current trajectory • Radically change • Bounce back and forth wildly
• Data • Out of date • Incomplete • Inaccurate
• Models • Multiple models exist yet models are missing for some key areas • Models don’t always match a carriers actual book of business • Black boxes that don’t give enough insight into drivers of risk
• Technology • Analysis is slow - lack of real time guidance to underwriters • Lag time - rollups take a long time
Catastrophe Challenges
10 www.sapiens.com
Result
• Sub optimal exposure management
• Sub optimal cross geography optimization
• Inefficient use of capital
• Broad actions instead of surgical strikes
• Higher cost of reinsurance
11 www.sapiens.com
• Individual account underwriting
• Establish guidelines
• Differentiate risks
• Analyze policy structures
• Develop pricing
• Book /territory management
• Determine risk drivers
• Evaluate capital adequacy
• Allocate capital across territories – balance your book
• Estimate losses quickly and accurately
Areas where a carrier can take action
Most of these take time to implement. Reinsurance is a relatively fast solution.
• Claims
• Staff training and augmentation to address peak seasons
• Consistent processes to address increasing regulatory scrutiny
• Expand fraud capabilities
• Capital management
• Structure risk transfer – reinsurance? Cat bonds?
• Determine reinsurance needs
• Optimize your reinsurance program
12 www.sapiens.com
• Reinsurance programs are increasingly complex
• Massive spreadsheets
• A reliance on paper documents
• Knowledge preserved in the heads of one or two gurus
• Carriers face increasing regulatory demands for transparency
• Many are finding huge dollars available through recoveries
• Technology availability makes automation of reinsurance a project with the potential for sizable returns
Reinsurance Is A Unique Area Within An Insurance Carrier
13 www.sapiens.com
What are Reinsurance Solutions?
• Reinsurance solutions are used:
• To store and track information about reinsurance contracts in place
• Both Treaty and Facultative
• Both proportional and non-proportional
• Information stored includes attachment points, aggregate limits and inurements, underwriting characteristics, participations, and commission
• To identify policies that are covered by reinsurance
• To calculate premiums owed to reinsurers, to identify claims that are covered by reinsurance and track the recoverables, payments, and commissions
• To provide the data needed for statistical reporting
14 www.sapiens.com
How Do They Work?
Policy
Claims
General Ledger
Reinsurance
Contracts/ Parties
Reports
15 www.sapiens.com
Summary
• It’s a buyers market. Competition in the global reinsurance industry is fierce.
• Capital is plentiful – but use it wisely.
• Utilize analysis and modeling tools – or look to your intermediary for support here – to assess exposures
• Take the opportunity to negotiate tailored programs that meet your specific book
• Spreadsheets are the dominant method used by cedants to handle reinsurance
• Manual processes lead to significant levels of leakage on the collections side
• Recommendation:
• Consider automation if you have complex reinsurance programs in place as they can lead to difficulty in calculations and allocations
16 www.sapiens.com www.sapiens.com
The Business Case for Implementing a Reinsurance System
Martin Greenberg, August 2014
17 www.sapiens.com
Why Implement a Reinsurance System?
• Comprehensive Reinsurance program & information management:
• Providing accurate & timely information
• Support for compliance requirements and regulatory reporting
• Support for claims recoveries – preventing claims ‘leakage’
• Optimizing operational activities
• Business accuracy – allocation and calculations
• Improved efficiency & control
• Accounting support
• Current accounts management & credit control
• GL Accounts support
Support for Business:
18 www.sapiens.com
Why Implement a Reinsurance System?
• Comprehensive Reinsurance program & information management:
• Providing accurate & timely information
• Support for compliance requirements and regulatory reporting
• Support for claims recoveries – preventing claims ‘leakage’
• Optimizing operational activities
• Business accuracy – allocation and calculations
• Improved efficiency & control
• Accounting support
• Current accounts management & credit control
• GL Accounts support
Business Topics:
20 www.sapiens.com
Sample Claim Reinsurance Coverage
FAC prop (1)
Treaty proportional (3)
RETENTION (6)
FAC XL capacity (2)
Treaty XL (4)
FAC XL Spot (5)
…managing claim reinsurance recoveries can be a challenge…
21 www.sapiens.com
Reinsurance Information Management
Quote from Celent Report:
Ceded Property/Casualty Reinsurance Solution Spectrum:
“… insurers thought they were successfully managing their programs, only
to discover that, at best, they could not provide
accurate snapshots and projections to senior
management…”
22 www.sapiens.com
Reinsurance Management – Common Situation
Reinsurers’ rating, collateral, and agreements Reinsurance programs & contracts
Ceded transactions • Premium –
proportional • Claims – proportional
& XL
Combination of:
Excel and data repository
Reinsurers and brokers management Word, Excel, scanned documents
Data repository
Reinsurance program and contracts
Policy system – Reinsurance processing
Claims system – Reinsurance processing
Reinsurance business functionality: • Premium deposit & adjustment • Commission & brokerage, rebates,
taxes, etc. • CAT claim handling • Reinstatements • Aggregate limits
Reinsurance Accounting functionality: • Technical documents & billing • Current accounts management • Information for GL, statistics and
compliance
Information Repository Business Process
23 www.sapiens.com
Reinsurance Management – Preferable Situation
Reinsurers and brokers management
Reinsurance program and contracts
Policy system – Reinsurance processing
Claims system – Reinsurance processing
Reinsurance business functionality: • Premium deposit & adjustment • Commission & brokerage, rebates,
taxes, etc. • CAT claim handling • Reinstatements • Aggregate limits
Reinsurance Accounting functionality: • Technical documents & billing • Current accounts management • Information for GL, statistics and
compliance
Business Process Comprehensive Information Repository
Reinsurance Parties & Rating Reinsurance programs & contracts
Ceded reinsurance transactions –
premium & claims
All reinsurance activities
Comprehensive accounting
“One Point of Truth”
24 www.sapiens.com
Why Implement a Reinsurance System? Comprehensive Information Management
Comprehensive repository • Contracts & programs • Counterparties information • Transactions & Claims • Current accounts • P&L and Balance Sheet • Aggregate information for MI
Business Benefits – Examples • Operational reporting & queries
• Contracts & counterparties
• Transaction reports
• Accounting
• Brokers & reinsurers statements
• Accounts aging & credit control
• GL Accounts support
• Compliance
• Schedule F, P
• MI & Analytics
• Reinsurer exposure
• Profitability
• Triangulations
• Claims & Risk profiles
• What-if modeling
Reinsurance System Features
25 www.sapiens.com
Why Implement a Reinsurance System?
• Comprehensive Reinsurance program & information management:
• Providing accurate & timely information
• Support for compliance requirements and regulatory reporting
• Support for the claims recovery process – preventing claims ‘leakage’
• Optimizing operational activities
• Business accuracy – calculations & data management
• Improved efficiency & control
• Accounting support
• Current accounts management & credit control
• GL Accounts support
Business Topics:
26 www.sapiens.com
Claims Leakage Source Complex Claim – Illustration
Cover A
Cover B
Cover C
Attachment Criteria A
Attachment Criteria B
Claim information
Attachment Criteria C
Cover D
Treaty X
FAC Y
Retention
Attachment Criteria B
27 www.sapiens.com
Claims Leakage in Reinsurance – The Issues
• Claim not allocated to reinsurance contract(s)
Not recovered
• Claim allocated to some reinsurance contracts, but not to others
Partially recovered
• Claim allocated incorrectly to reinsurance contracts
Wrongly recovered
• Claim recovery calculated incorrectly
Erroneous recovery amounts
Quote from: Celent Survey
“… still, other insurers discovered hundreds of millions of dollars of
unrecoverable reinsurance recoverables…”
28 www.sapiens.com
Claims Leakage in Reinsurance – The Issues
• Claim billing – improper handling in accounts
Late – or missed – recoveries
Quote from:
AON Reinsurance Survey
“… Companies with more recoverables outstanding over 60 days
write off a larger percentage of reinsurance recoverables …”
29 www.sapiens.com
Reinsurance Management – Unrecoverable Claims
Claims ‘leakage’
Extent of problems – Examples:
Company ‘A’ – missed $14.5M reinsurance recoveries (out of $2B direct claims)
Due to: reinsurance program complexity, manual processes
Company ‘B’ – $8.2M
Due to: aggregation of small claims
Company ‘C’ – $3.1M
Due to: improper calculation of facultative contracts
30 www.sapiens.com
Why Implement a Reinsurance System? Prevent Claims Leakage
• Comprehensive management of the reinsurance program
• Automated claims transactions processing
functionality
• Comprehensive accounting functionality
• Information & control
Business Benefits – Examples
• Secure claims recoveries – automatic attachment to contracts & calculation of allocated amounts
• Eliminating manual processing & errors
• Automated billing
• Effective credit control and debt-aging
• Claims reports & queries
• Operational results – detailed claims information
• MI & BI – indicating potential areas of claims leakage
Reinsurance System Features
31 www.sapiens.com
Why purchase a reinsurance system?
• Comprehensive Reinsurance program management:
• Providing accurate & timely information
• Support for compliance requirements and regulatory reporting
• Support for the claims recovery process – preventing claims ‘leakage’
• Optimizing operational activities
• Business accuracy – calculations & data management
• Improved efficiency & control
• Accounting support
• Current accounts management & credit control
• GL Accounts support
Business Topics:
32 www.sapiens.com
Why Implement a Reinsurance System? Effective Business Management
• End-to-end business functionality
• Automated and convenient integration with external systems – Policy, Claims, Accounting, Reporting, etc.
• Authorization & security
• Comprehensive audit trail
Business Benefits – Examples
• Ensuring business accuracy
• Comprehensive automated premium & commission calculations – all contract types – proportional, XoL, Facultative & treaty
• Support for inuring contracts
• Reliable accounting documents & information
• Ensuring information integrity
• Enabling growth – reducing extent of manual work
• Audit trail and tracking of all business & accounting activities – ensuring SOX compliance
Reinsurance system features
33 www.sapiens.com
Why Implement a Reinsurance System? Efficiency & Control
• Integrated workflow – process management
User-defined activities; based on business
rules
• Integration with document management
Reinsurance system features
Business Benefits – Examples
• Implementing pre-defined & controllable business processes
Examples:
• Contract authorization – underwriting approval chain
• Payment approval – 4-eyes confirmation
subject to authorization & security
• Ability to attach internal & external documents to business entities
Contract wording, claim notifications, billing docs
34 www.sapiens.com
Why Implement a Reinsurance System?
• Comprehensive Reinsurance program management:
• Providing accurate & timely information
• Support for compliance requirements and regulatory reporting
• Support for the claims recovery process – preventing claims ‘leakage’
• Optimizing operational activities
• Business accuracy – calculations & data management
• Improved efficiency & control
• Accounting support
• Current accounts management & credit control
• GL Accounts support
Business Topics:
35 www.sapiens.com
Why Implement a Reinsurance System? Superior Accounting & Credit Control
• Automated technical documents – for all types of contracts, and activities
• Current accounts management – brokers &
reinsurers
• GL Accounts support
• Detailed information for compliance
• Additional features
Business Benefits – Examples
• Technical documents:
• Claims billing
• Premium – credit notes, deposits, adjustments, etc.
• Q/S periodic accounts
• Broker/reinsurer statements
• Aging analysis
• P&L and Balance Sheet management
• Granularity of amounts – support for Schedule F, P
• Multi-currency
• Multi-company
Reinsurance system features
36 www.sapiens.com
Summary
Implementing a comprehensive reinsurance system is essential for handling the business needs of an insurance company – the benefits are apparent & significant
So how do I proceed from here? Some proposed guidelines:
• Functional fit – look for a product with the best functional fit for your organization, based on your business needs
• Modern technology is imperative
• Enabling seamless integration with existing IT infrastructure
• Enabling connectivity with other IT systems and services e.g. Policy, Claims, GL Accounts, document management, etc.
• Migration of existing data is crucial – the reinsurance product must handle existing contracts and claims
• … and a reliable vendor with a track record of successful implementation of Reinsurance projects
37 www.sapiens.com www.sapiens.com
Thank You
Contact: e-Mail: Info.Sapiens@Sapiens.com Website www.Sapiens.com
top related