Carriers Lag in Automation of Reinsurance Processing

Although reinsurance is no longer strictly a handshake business, reinsurance administration remains a relatively unautomated process compared to other insurance functions. That is one of the findings of recent research from Minneapolis-based Inpoint Services, an Aon company. Thirty-two percent of insurance companies that responded to the Inpoint study said they use “comprehensive technology systems” to support their reinsurance processing – which is a significant increase from the 17 percent who said they did so in 2005. However, 42 percent of respondents said they still use partially automated systems, and 26 percent said they rely on manual processes, such as spreadsheets.

However, it doesn’t appear that the situation is going to improve dramatically in the near future. The Inpoint survey found that one-fifth of responding companies have used the same partial or comprehensive reinsurance administration technology for more than 15 years. Only 27 percent of companies said their systems were less than five years old. Reasons cited for the reluctance to update include budgetary constraints and lengthy implementation periods. Many firms said their existing systems meet their current reinsurance processing needs, according to Inpoint.

Besides core systems, other technologies contributing to reinsurance automation include electronic document storage, which, according to the survey respondents, increased efficiency by at least a two-to-one margin. Sixty-two percent of respondents said they electronically stored all of their contracts, 49 percent electronically stored all of their claims and 44 percent stored all of their reports this way. The wider usage of electronic storage for contracts, Inpoint notes, is likely due to the static nature of the documents and the need for access by multiple users.

Surprisingly, the survey found that large companies with highly automated systems reportedly do not receive reinsurance payments as quickly as companies with less-comprehensive technology. However, the delays are attributed to other reasons as such as improper loss notices and insufficient loss documentation, according to Inpoint.

There also is a correlation between company size and technology use when it comes to reinsurance administration, the Inpoint research revealed. Only 23 percent of smaller firms (less than $100 million in ceded premium) participating in the study have fully automated systems, they said, while 57 percent of large companies (more than $500 million in ceded premium) reported they have fully automated systems. Even among companies that are highly automated, size dictates the type of systems used. Small companies tend toward off-the-shelf software, while larger firms tend to develop their reinsurance administration technology in house, Inpoint reports.

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio