Re Technology: Ready & Waiting?

The fact that reinsurance companies have been somewhat slower to the automation front than their counterparts in the P&C and life/health markets is actually proving to be a true business opportunity for enterprising core application software providers. "Reinsurers have large, complex backoffice systems," says David Hollander, partner, insurance industry, North America, Andersen Consulting (New York). "What we find is the larger reinsurers are first trying to make sure they have an effective shared service infrastructure, and common processes of finance, human resources, billing and so on."

"In years past, systems would never talk to each other," says James McCormack, CEO of Reclaim Technologies (Newark, OH). "To an extent, these situations still exist, but there has been an increase in software packages designed at getting them to talk to each other and help the company get an overall look at how they operate."

These core system efforts typically are aimed at reducing reinsurers' operating costs. "There is a lot of cost for reinsurers to process their core business," primarily in the claims area, Andersen's Hollander says. "Seventy-five cents out of every dollar flows through the claim area. People know there are ways of reducing the loss cost, as well as the expense."

Partly because of this focus on core system efficiencies, reinsurers have yet to take large advantage of Web technologies. "Additionally, they just got through the EDI (electronic data interchange) stage," says Tom Gierut, vice president of research and development at Re Systems Group (RSG, New York). "They're sitting back and working on their in-house projects." Perhaps because of the industry-wide hold on new technology investments, RSG's revenues have remained level, Gierut says, with growth primarily coming from its consulting services.

Also, reinsurers' hesitant moves toward e-commerce are influenced by the ways they do business. "Underwriters do business on handshakes and email; providing information online just hasn't made it," Gierut says. Slow adoption of Web technologies has also meant little demand for core applications to support e-commerce activities.

Reinsurers can therefore look to e-commerce as a way to improve efficiencies in their core operations, says Andersen's Hollander. "E-procurement is an area that makes particular sense for reinsurers," he explains. "Also, the use of the Web will be for information sharing and reinsurance exchanges."

"The whole concept of the Internet is that it facilitates relationships," says Ray August, senior vice president of products and services at Mynd (Columbia, SC). "Reinsurance is based on relationships, so this whole way to electronically create relationships...will have an impact on reinsurance."

Systems providers need to be aware of these exchange discussions, as well as growth in actual consolidations among reinsurers. In fact, more than in the P&C and life/health segments, consolidation in reinsurance is shaping the marketplace for tech vendors. "It's been the most consolidation I've seen in the past 10 years," says RSG's Gierut.

As a result, vendors are dealing with a shrinking client pool. "You have to deal with bigger companies. You have to focus your marketing differently," Gierut says. "But that will change, probably in the next couple years."

"To date, the mergers have been working against us," acknowledges Reclaim's McCormack. "Instead of having multiple companies, we have one."

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REINSURANCE SYSTEMS: SOLUTIONS PROVIDERS

Allenbrook, Inc., Lowell, MA

CSC, El Segundo, CA

The Freedom Group, Cedar Rapids, IA

Genelco, St. Louis

Mynd, Columbia, SC

Rebus Systems, Secaucus, NJ

Reclaim Technologies, Newark, OH

Re Systems Group, New York

Sherwood International, London

TAI Life Reinsurance Systems,

Orland Park, IL

UniSURe, Cincinnati

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REINSURANCE SYSTEMS: KEY TRENDS & CHALLENGES

- Large, complex back-office systems.

- Need for effective, shared service infrastructure and enterprise-wide view of information.

- Focus on controlling opening, processing costs.

- Explore possibilities of new B2B ventures, such as exchanges.

- Industry consolidation.

- For now, the Web is an unrealized upportunity.