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Management Strategies

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Reinsurance Industry Looks Beyond Transaction Processing To Innovative Automation and Better Risk Management

The reinsurance industry is shifting to an information-based operational approach with an increased emphasis on discovering ways to automate, while profiting from, information management.

Phil Marzullo
SVP and CIO,
Folksamerica Reinsurance Co.
(New York)

Paul Fox
Managing Director and CIO,
Guy Carpenter & Co.
(New York)

Pierre Ozendo
Head of Americas P&C division, Chairman and CEO,
Swiss Re America Corp. (Armonk, N.Y.)

Donald Light
Senior Analyst, Celent (Boston)

Q: In terms of automation, where is the reinsurance industry today relative to other insurance industry segments? What have been the biggest automation challenges for reinsurers?

A: Phil Marzullo, Folksamerica: The reinsurance industry still lags behind direct insurers in automation. Since the volume of policies and transactions are so significantly less than direct insurers, the payback was always difficult to quantify to justify a large IT investment. However, the large premiums on these small numbers of treaties have resulted in innovative automation in areas other then transaction processing.

A: Pierre Ozendo, Swiss Re: Historically, the reinsurance industry has been transactionally focused rather than information- or knowledge-focused. We once tended to look at each transaction independently on its technical merits and loss estimates, and often did not realize the full embedded value of the information spanning and moving through our transaction streams. Automation or electronic processing is just the beginning. At Swiss Re, we're helping our clients work through and profit from information management. It's true that automation reduces transaction costs, but more important, it generates a storehouse of knowledge and opportunities for knowledge sharing with our clients. It enables better risk selection and, ultimately, better risk management by our clients and their clients.

There are some major barriers to more-rapid progress in information mastery. One of them is data standardization. Industry standardization will benefit all involved. We are already working to standardize data with clients today, designing integrated approaches to information and risk management.

A: Donald Light, Celent: In general, reinsurance processing has not caught up with the best new business and claims practices of primary insurers. Most personal lines and an increasing proportion of small commercial business can be rated, quoted and bound online. Insurers are also compressing the time it takes field adjusters to assess and estimate repair costs through the use of wireless communication and shared assessment tools. The root cause of reinsurance lagging behind these advances is the inherent complexity of reinsurance contracts and the claims process.

Q: What are the key areas that present opportunities for automation in reinsurance? What are the resulting benefits?

A: Marzullo, Folksamerica: The key opportunity and biggest payback for IT automation in property and casualty reinsurance companies lies in risk management (i.e., catastrophe modeling), business intelligence and imaging/workflow applications. As a result of disasters such as 9/11 and the Katrina/Wilma/Rita hurricanes a few years ago, P&C reinsurers are investing a lot of IT dollars in cat modeling systems and business intelligence to address the need for better risk management to satisfy the marketplace and rating agencies. I include imaging/workflow because even though the policy (treaty) volume is low, the claims processing transactions very often are complex. Imaging and workflow address this issue.

A: Ozendo, Swiss Re: With alignment and joint planning and modest up-front investments, electronic linkages provide near-immediate benefits in the form of reduced transaction costs, freeing resources to focus on areas of much higher impact for both us and our clients, notably risk portfolio management. Integrated data systems also allow business to be transacted much more quickly, often in real time. An example of this is Swiss Re's deployment of SwiftRe in the facultative segment. SwiftRe reduces transaction costs by roughly one half for both us and our clients. More important, it's putting us on a path to becoming fully electronic with even more automated facultative trading. Once again, this will free up our best people for risk selection and management -- for co-underwriting on our toughest risks.

We're also focusing on our treaty relationships and how we can transact business electronically. Solutions will vary by client type and size, but it's forcing us to rethink traditional business relationships. The main requirement is a willingness to engage one another and collaborate strategically, creating more cooperative approaches to information and knowledge, and perhaps even exploring new value chains and risk management structures.

A: Light, Celent: Insurance companies that buy reinsurance for individual risks will realize the biggest return on their technology investment by linking their new-business systems to brokers' and reinsurers' underwriting systems in order to facilitate the placement of those risks. Insurance companies seeking coverage for broader parts of their books should enable their policy administration and claims systems to identify where reinsurance coverage exists, and when reinsurance claims are triggered. Reinsurance companies should focus on making the underwriting process more efficient and transparent to all participants.

A: Paul Fox, Guy Carpenter: The new ACORD standards offer hope in streamlining data exchange by eliminating the transformation of data (and associated errors) when it changes hands. In terms of transaction automation, with the proven ACORD standards, there are opportunities for cedents, brokers and reinsurers to significantly change their processing centers, become more efficient and reduce costs.

Peggy Bresnick Kendler has been a writer for 30 years. She has worked as an editor, publicist and school district technology coordinator. During the past decade, Bresnick Kendler has worked for UBM TechWeb on special financialservices technology-centered ... View Full Bio

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