The recent Deloitte’s ceded reinsurance report provided yet further evidence of the challenges facing insurers in digitally transforming their outwards reinsurance programme. The findings of the article ring true with Cenata, and in this article, we have offered some additional insight from our experience of those challenges.
Nick Freer, Managing Director of Cenata says. “Our goal is to offer a pathway forward that delivers meaningful and measurable business benefits, specifically to those insurers who are looking to understand how best to launch or re-launch their ceded reinsurance transformation strategy”.
The survey points to data trends from the last 12 months, offering new insights into the challenges facing an insurer looking to automate its ceded reinsurance processes. Our subject matter expertise analysts at Cenata agree that the core delivery issues, and business drivers continue to increase in importance.
The Executive Summary highlights three key percentages from the survey respondents.
- Increased complexity in insurance programmes at 79%. Increasing programme complexity is an ongoing and integral part of our industry. Our real-life experience confirms complexity continues to increase every year. More recently and compounding this complexity is the need for multinational insurers with multiple inwards systems to be able to consolidate their data within the gross to net process for group-wide analysis and (regulatory) reporting requirements. Why? Because insurers will always look to align their organisation, products and solutions with their clients’ needs to create a competitive advantage.
- ‘Data, data, data’ as the single biggest challenge to transformation at 71%. Data volumes and complexity have always challenged the prevailing technology, to deliver elevated levels of timely automation, and granular and aggregated data for analytics and reporting. Spreadsheets, databases, and manual interventions have been and continue to be applied to ‘manual/legacy’ processes to meet deadlines and accuracy problems. To hit elevated levels of real-time automation (95% +) requires subject matter expertise to understand and interpret the existing data, along with systems impacting that data to ensure an optimum data migration to ensure that issues identified in the existing ceded process are resolved and not just computerised. Artificial Intelligence (AI) will play a significant role in this process over the coming years.
- The survey raises the link between ceded reinsurance and the optimisation of capital. The relationship between ceded contract performance and capital optimisation has often been understood by Underwriting, Actuarial and Finance teams. The challenge is that poor granular and aggregated data needs further manual and systems intervention to transform it into a format suitable for analysis and timely tactical and strategic decision-making by these teams. The outcome is that the complexity of producing this vital downstream data is compounded. Unintended consequences step in here also as operational departments become siloed as data is passed ‘baton-like’ between them with little or no coordinated feedback taking place.
of survey respondents indicated that they expect their reinsurance programmes to continue to increase in complexity in the short-term (i.e. in the next 2-3 years)
of respondents said that late data leads to manual activity, workarounds and inaccuracies and 57% said that they have no single source for the data they need, which exacerbates the issue.
of respondents with >$1bn CWP acknowledge they do not have the necessary talent within their team.
The above points are the ‘why’ in the 63% of those surveyed not having the necessary talent. We have already discussed how ceded reinsurance leaders will support their existing processes with a mix of other manual and office application capabilities. These additions tend to sit outside of standard IT scope, the result being that ceded reinsurance knowledge and practises become siloed within the department. When this occurs, it becomes exceedingly difficult to replicate this expertise. A successful ceded reinsurance transformation strategy is multi-threaded; it needs to unravel the existing idiosyncratic processes; surface the complexities of the reinsurance contracts; and identify the data and timelines for the downstream users of that data. All insurers need specialist help to do this, or by definition, it would already be in place. Put in these terms, 63% could be seen as conservative.
Given this complexity, it is hardly surprising that transformation delivery teams baulk at the challenges of delivering a global, real time, 95% + level of an automated ceded solution, especially considering the complexity that you may not know about – the unknown unknowns.
To uncover these ‘unknowns’ requires more than just IT-based ‘change outcomes’ and clever functionality. It requires demonstrable expertise to deliver the needs of all departments impacted by ceded reinsurance data.
Over the past two decades, insurers who failed to achieve high levels of automation in their ceded systems have incurred significant costs. To compensate for the lack of functionality, technology, and automation, they had to rely on spreadsheets, manual intervention, additional staff, and other applications. This "manual and unsophisticated" approach has unintentionally segregated the traditional ceded process instead of integrating it with other operations. As a result, inefficiencies have been introduced, leading to higher administrative process costs and lower profits year after year.
How can an insurer increase efficiency, reduce risk, and improve their competitive edge?
To put it simply, you'll need to partner with a supplier who truly comprehends your systems and requirements, possesses the necessary functionality to meet your needs, and has the technology to provide real-time performance for downstream data users. In addition, the supplier should have thought leadership to effectively address your needs within a cost-effective timeline, and the expertise to guide you through the process based on previous successful experiences.
Come and talk to us about the challenges you have uncovered in applying your ceded reinsurance transformation strategy to your business. We offer the opportunity to sit down with our team and informally set out those high-level issues that are hindering progress. We will then share with you real-world examples of how those issues would be addressed.