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Making the move: property/casualty carriers are finding good reasons to automate reinsurance administration.

The lion's share of U.S. property/casualty insurers still relies on spreadsheets for reinsurance administration.

At least that's what 80% of participating chief financial officers indicated in a recent survey conducted by StoneRiver, a software and processing solutions provider. Only 13% of those surveyed said they're using an automated system such as a ceding engine or a system that automatically identifies and attaches reinsurance per contract terms to manage reinsurance collections. That compares to more than 25% a year earlier.

An entirely automated system can have a substantial impact on finances as well as operational efficiency, and it dramatically reduces the likelihood of errors due to manual processes, said Craig Robinson, reinsurance product specialist for StoneRiver.

Yet, "reinsurance automation has typically received less investment dollars and fewer personnel assigned to it," according to Anthony Bertucci, managing director of CSC Reinsurance U.S.

For years, reinsurance automation took a back seat to other information technology projects and ranked low on many carriers' IT lists of priorities. But significant catastrophe losses and falling balance-sheet assets are making automation more important as insurers realize they need to increase the timeliness and accuracy of their reporting. As well, many companies have to interface with multiple front-end data sources.

"An automated system can do the identification and attachment of their policies and claims and handle all reinsurance cessions," Robinson said.

Automation also helps maintain insurers' reinsurance history and details in one repository, he added. "That opens up a whole new reporting world by being able to create consolidated statements, Schedule F and P reporting and improved cash management. And it also helps them better respond to new reinsurance offerings."

Regulatory initiatives, particularly Sarbanes-Oxley and the upcoming International Financial Reporting Standards, are adding to the pressure for increased automation.

"Reinsurance recoverables are such a large part of a company's assets [that] information being handled on spreadsheets isn't something that will pass muster with many auditors. That's driving a spike in provable systems or third-party offerings where companies can have confidence that information is auditable and traceable," said Don Goodenow, StoneRiver's director of reinsurance product management.

Vendors also are recognizing the trend. "The number of new entrants to the reinsurance solutions marketplace has recently grown. Vendors wouldn't be putting in time and resources unless there was some demand for additional comprehensive solutions," said Donald Light, senior analyst in Celent's insurance area.

Among the largest companies on the commercial side, where reinsurance is used more extensively, many now rely on an in-house or off-the-shelf system, he said. "But as you move down into the small- and middle-market, simple home-built solutions like Excel spreadsheets are often still the norm."

"Carriers are fighting against five to 10 other IT projects for funding," Robinson said. "While we've never had a problem convincing business users that this is something they need, the challenge is convincing the check signers."

"Reinsurance doesn't have a customer-facing impact," added Sue Peirce, StoneRiver's vice president of reinsurance operations. "Companies want reinsurance systems to just be there working, without issues or fluctuations. But when something happens, like a big catastrophe or a reinsurance partner suffers financial difficulties, then suddenly automation gains visibility."

Big Improvement

When Meadowbrook Insurance Group wanted a new way to manage its reinsurance collectibles and administration, it turned to automation.

The catalyst for that move nine years ago was that Meadowbrook was "positioned for growth and [we] recognized that the more well-tooled our back room was, the more efficient we could be in attracting new business and meeting our company's objectives," said Suzanne Viksne, vice president of reinsurance.



She said the specialty insurer is now "fully automated with respect to reinsurance claim processing and claim recoveries, and we have elements of automation for facultative reinsurance and reinsurance premium transactions."

Like many carriers, Meadowbrook used to rely on Excel spreadsheets or databases to manage its reinsurance processes. "Reinsurance contracts are complex and there are many differences in how one carrier places reinsurance compared to another carrier. Automation provides us accuracy around numbers and creates a greater sense of confidence around the information we receive. That way we can spend our time analyzing the output--what reinsurance trends are telling us--to give us a better understanding of our reinsurance buying patterns and needs," Viksne added.

For Harleysville Insurance, the move to reinsurance automation was a relatively easy sell to its senior management and board, said Vice President and Chief Risk Officer Robert J. Jaso.

"It leads to more timely recovery of reinsurance recoverables and claims reporting. It also allows us to look at experience across contracts, and helps identify reinsurers with a history of not paying us in a timely fashion, so we can bring that up at contract renewal. Reinsurance is a key component of our overall capital management strategy."

The Pennsylvania-based insurer automated its reinsurance functions two years ago with a combination of in-house and off-the-shelf systems. "Our system handles billing, claims notifications and reporting to reinsurers," Jaso said. "It also enables us to track outstanding inquiries and balances, and automatically produces Schedule E It's also a central repository for reinsurer requests about outstanding claims, and offers increased data availability to help us build more efficient and effective reinsurance programs."

StoneRiver's Peirce said "the people doing work on the ground" often consider Excel spreadsheets as having something automated. "They may rely on someone to write a report in a claims system, manually figure out which claims need to be ceded and then manually plug numbers into a spreadsheet. But that's still a manual identification process and they may forget something, aggregate some claims or use the wrong number or formula."

Slowly, the industry is no longer turning a blind eye toward automation. "If companies have an incident, it raises awareness that they don't have the control around reinsurance they need. Or if they look at a business continuity plan, realize someone in accounting is the only person who knows how spreadsheets work, or try to locate weak spots or exposures, that also raises awareness" she said.

Finding a Payoff

Vendors are contracting to automate the process.

CSC's SICS Cede reinsurance solution is targeted to primary carriers to support client management, underwriting, accounting, claims, outward reinsurance and retrocession accounting, and risk and peril accumulation.

Users get a central view of their business to help identify and manage risk effectively and then report on those risks, said Bertucci, of the technology-enabled business solutions and services provider.

For StoneRiver, its Freedom Reinsurance System offers a full spectrum of reinsurance administration tasks for small- to midsize domestic writers. The Universal Reinsurance System is geared to large insurers and global reinsurers processing large volumes and transactions through calculation engines.

Carriers can calculate both facultative and treaty cessions including quota share, excess, catastrophe excess and aggregate excess of loss.

Automation payoffs are significant.

As for cost savings, "many reinsurers had to employ more people than necessary to manage reinsurance transactions. An efficient automated process with robust systems offers a high degree of integrity to help manage resource costs and provide information carriers need to evaluate their experience with customers and over lines of business, and to price new products and future business," Bertucci said.

Some customers have even lowered their combined ratio one-half to one point with the change to automation, Robinson said.


For one East Coast personal lines insurer, the Freedom Reinsurance System helped identify $1 million of claims previously unidentified by manual methods, said Peirce. The system also identified more than $10 million of previously missed recoverables and reduced the reinsurance close cycle from three days to eight hours for another large Midwestern multiline carrier.

"Automation allows users to easily answer questions when there's a claim or coverage inquiry, pulling up claims to see how much is automatically attached to a contract," Robinson said.

For Meadowbrook, automation helps improve accuracy and reduce timing around the close process, Viksne said. "That sounds simple, but time, cost and accuracy around reinsurance numbers have a major role in the overall financial reporting process.

"If we can use IT dollars to create a front-end system for our agents who rate, quote and issue policies and make doing business easier on the front end for our partners, that tends to get more of a nod than something that has more of a behind-the-scenes benefit," she said.

"The more prepared you are in processing data efficiently and streamlining back-room functions, including preparation of financials, the better positioned you are to grow," Viksne added. "The number of people required to do processing is significantly reduced in an automated environment. That frees up individuals and departments to do more analytical and creative processes, which improves our understanding of the reinsurance landscape."

Celent's Light said reinsurance automation also allows insurers "to get their money's worth out of reinsurance agreements. Unless you have a way to recognize loss occurrences covered under reinsurance in a timely and accurate way, you won't be claiming and recovering all that you are owed under your reinsurance contracts."

Automated Tomorrow

Carriers who haven't made appropriate investments in reinsurance automation run the risk of hurting their financial results, said Light.

"In tough economic times, every asset on your balance sheet is that much more important. So insurers should invest enough in reinsurance systems to capture 100% of their reinsurance recoverable assets," he said.

"Carriers are no longer content sitting back with people in a back room doing manual tracking," added Bertucci.

"There's pent-up demand and they're now willing to allocate budget and resources toward automation."

For carriers like Harleysville Insurance, automated systems are "an absolute necessity for a company our size," said Jaso. "It's integral to everything we do in reinsurance, such as controlling our costs and potential exposures either to our income statement or balance sheet from not adequately administering the function. It's also important to have good, knowledgeable people involved with populating and then running the systems."

At Issue: The majority of property/casualty insurers aren't yet automating their reinsurance administrative processes.

The Situation: More vendors are offering demonstrated systems to help with those efforts.

The Payoff: Reinsurance administration automation cuts costs, improves accuracy, reduces data entry errors and lowers flow time for reinsurance recoverables.

Learn More

Harleysville Insurance

A.M. Best Company # 03916

Distribution: Independent agents

Meadowbrook Insurance Group

A.M. Best Company # 18132

Distribution: Independent agencies, wholesalers, general underwriters, trade


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Title Annotation:Technology: Reinsurance
Author:Chordas, Lori
Publication:Best's Review
Geographic Code:1USA
Date:Jan 1, 2010
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