A five-step process to modernising reinsurance management operations for insurers
Consider the following possibility: an insurer discovers reinsurance accounting irregularities that require a relook at multiple years of reinsurance processing to identify variances.
They could be due to manual errors in a spreadsheet that result in substantial financial impact requiring the firm to refile several years of financial statements.
A development like that occurred at an insurance firm before the pandemic in the United States, according to a Deloitte survey of senior executives in 2017.[1]
With a complex and evolving risk landscape in a rapidly digitalising Southeast Asia, Philippine insurers need to take a closer look at how they can improve their operations in reinsurance management.
It’s heartening to note the accelerated digitalisation of the front-end with consumer platforms in response to the pandemic. Insurers should seize the momentum and embrace better reinsurance management systems as well.
Laying on the Pacific Ring of Fire, Philippines is in one of the world’s most disaster-prone regions. Exposed to volcanic eruptions, earthquakes and typhoons, it needs a robust insurance backbone to underpin economic development. A resilient reinsurance management system is essential.
Legacy technology hindering potential
In 2019, insurance premiums accounted for a paltry 1.33% of national income, according to a report by Insurance Commission at the Department of Finance.[2] On the other hand, the statistic also shows the considerable potential of the Philippines’ insurance market.
Unfortunately, many Philippine insurers, especially small and medium-sized ones, still rely on legacy technology or follow highly manual processes to manage their business, including reinsurance placements.
While the pandemic has injected urgency on insurers to digitalise their front-end systems, back-end operations, including reinsurance management, could still be lagging behind. It can be a bottleneck in their ambitions as they look to enhance protection in their country.
Whether the technology being considered is focused on tracking reinsurance programmes, placements and recoveries or linking proper policy management to reinsurance cessions, such outdated processes can’t support increasingly complex business and reinsurance arrangements.
Not only is the manual and labor-intensive work prone to errors that could lead to unintended levels of risk exposure, it offers insufficient analytics capabilities.
What’s happening elsewhere?
While insurers drive modernisation of reinsurance management operations, reinsurers sometimes understand the pain points better.
Reinsurers like Peak Re can therefore design digitally-enabled products with a quality end-to-end ecosystem architecture that is easier for insurers to implement.
In our experience, effective reinsurance operation management requires a transformation journey that involves automation, enhancing data quality, audit-proofing of business, nurturing reinsurance professionals and eventually progressing to a stage where the right analytics can be produced.
Enhanced data integration and data quality is key. It requires understanding various sources and lines of businesses. It has been shown in many industry surveys that lack of quality data is a major concern. A good starting point for local insurers is moving away from storing data in different systems/ spreadsheets for different lines of businesses.
To get there systematically, insurance companies should follow what has now become a well-traversed path.
1) Automate processes to enhance efficiency and accuracy
In general, data and process automation creates efficiencies and improves accuracy and it’s no different in reinsurance management.
Automation can occur in a variety of ways such as automating the attachment of policies and claims to contracts, performing cession calculations or preparing reinsurance statements so they follow business rules.
Fast processing of insurance contracts and claims can also ensure timely and accurate submission and generation of informative reinsurance data and statements.
2) Ensure data quality and integration
Furthermore, a system that takes in accurate, complete and consistent data at all times will allow a better understanding of the profitability of a portfolio and determine an optimal reinsurance structure helping insurers place their reinsurance contracts appropriately.
But it first requires an effective data architecture that integrates data from various technology systems to allow analysis and support decision making. That entails investing in data warehouse technology and software to integrate data from various sources.
A centralised system that stores, tracks and curates all financial information, including reinsurance, can be a blessing as there will no longer be a need to look up information in multiple systems (or reply on manual spreadsheets).
3) Harness analytics and make the right calls
The ability to access better reporting and analytics offers powerful insights into the business.
However, reinsurance analytics is more than just a number of analytical methodologies or techniques used in logical analysis. It can transform data into action in the context of reinsurance decision making. Enhanced reinsurance analytics, for example, can help insurers improve negotiations with reinsurers and provide business insights to preserve and improve margins.
While analytics remains an important priority for insurers, it can only be achieved with the proper collection, curation and utilisation of data. Further, a reinsurance team will have more bandwidth to perform value-added activities.
4) Don’t forget to invest in human capital
Insurers, however, will face a challenge if reinsurance professionals move to another company or retire. It will be important to ensure a talent development plan to replace in-house reinsurance professionals.
But half the battle would be won if there already exists an end-to-end ecosystem architecture covering the whole process beginning from the front-end focusing on consumer journey to data automation based on insurance rules minimising human error with data integration and ultimately providing informative reinsurance data.
5) Make a digital audit of reinsurance the norm
Finally, improving operations in reinsurance management will see companies benefit from a transparency standpoint as well.
A fully-documented audit log detailing all the data and transactions that take place will make it much more easier for regulators and reinsurers to look back and understand the past.
It could necessitate a culture change at first but it will become the norm with repeated application.
Of course, modernising reinsurance management systems should be part of a holistic digitalisation journey ideally occurring in tandem with modernisation of other aspects of the business such as financial reporting, customer engagement, claims processing and policy maintenance. However, reinsurance operations are quite unique and may not be effectively improved with a wholesale package.
If insurers in Philippines re-think their reinsurance management operational strategy and prioritise investment in technology in this manner, they will be better able to secure optimal reinsurance purchases and avoid costly mistakes due to manual errors.
This article was first published in Insurance Philippines’ 4th issue, Q1 2022.
[1] Modernizing reinsurance administration, Deloitte (2018)
[2] Key Statistical Data (2015-2019), Insurance Commission, Department of Finance
