Recoverables are too critical for reliance on spreadsheets
Author: Colin Dean
In this era of modest economic growth, with regulatory demands requiring insurers to maintain minimum levels of capital, reinsurance is an increasingly relied upon resource in terms of protection and risk management.
Once relatively straightforward, reinsurance cessions have expanded in number, with the resultant effect of recoverables now being among the largest assets on an insurance company's balance sheet.
With the intricacy of contracts now far harder to administer, reinsurance administration at many companies has not kept pace with the increased sophistication of reinsurance. Poor management for complex treaties, based upon manual siloed processes, can prove to be costly and prone to errors. Failed submission of billings, payments and lack of reporting, can result in financial penalties, poor cash control or at worst, legal engagement, all ultimately affecting combined ratios.
This siloed approach has greater,
far-reaching consequences. Companies’ capabilities to effectively conduct performance analyses of individual contracts or individual reinsurers are restricted, inhibiting preparation for arbitration cases and negotiations. The identification of specific coverages that should be ceded to enhance financial performance is, again, subject to limitation without access to all the necessary facts.
Such an operational model is clearly unsustainable.
Given the critical role that reinsurance plays today, it requires insurers to transform their approach to maximise the value of their assets.
Recommendations include:
- Phase out manual activities and spreadsheets which cannot control the complexity in favour of leveraging automated solutions and utilities where available.
- Consider reviewing aging reinsurance systems for upgrade or replacement, enabling seamless integration across the business domain, removing silos and data black holes.
- Establish a data-centric strategy. Integrate data from multiple sources to a combined data warehouse/data model. Utilise intelligent analytical tools, enabling the true value of this rich source of knowledge to be shared across the business and facilitating the ability to conduct insightful analysis.
Having cut my teeth on Super Calc, the humble spreadsheet will always have a place in my toolkit. However, shadow systems such as these, should not be critical components for the modern reinsurance era.