Industry comment feature - For every problem there is a solution

Knowing how your business is performing is critical in these pressurised times. As providers of perf...

Knowing how your business is performing is critical in these pressurised times. As providers of performance management solutions to the insurance industry, Paul Latarche, one of the founders of Moore Stephens Consulting in London and Seth Rachlin, chief executive officer of the New York subsidiary, Moore Stephens Business Solutions, explain how innovative technology can help identify and address some of the problems facing today's global reinsurance industry.

For every problem there is a solution. The trick is to find the right solution. Einstein probably wasn't thinking of reinsurance when he said that we can't solve problems by using the same kind of thinking we used when we created them, but there can be few better examples to illustrate the maxim.

Against a fast changing financial backdrop, reinsurers have to be able to identify trends, anticipate losses and react quickly. The most pertinent and topical problems facing today's reinsurance industry include:

(a) Increased globalisation of the market, leading to the creation of multiple operating units often working with disparate and differing administrative and operational systems. The challenge here is to be able to source and prepare consolidated data which facilitates integrated management reporting.

(b) The insidious effect of the financial crisis in the international money markets, which is highlighting the need for improved analysis of premium production, broker performance, and business trending. The key here is to be able to identify the important trends from both a pricing and overall business perspective, and to be able to react to them sufficiently quickly to limit the downside and maximise the upside.

(c) When companies underwrite catastrophe risks, they typically do so using some form of analytical modelling, on a treaty-specific basis. This produces a fairly robust program which can anticipate losses for a particular book of business, and which can be used as the basis for both technical underwriting and pricing decisions. What it doesn't do is provide a holistic view of all insured risk locations, or a macro-level analysis of the entire book of business such as that which modern data warehousing techniques can provide.

The key to effectively addressing these problems is to combine business knowledge with technology expertise. The best solutions are, therefore, those using modern technology and developed by teams of experts drawn from both the IT sector and the insurance and reinsurance industries.

Interactive data

Today's successful reinsurance companies need interactive - rather than static - data to facilitate the planning and decision-making process which is such a vital part of their business plan. Proper data analysis can achieve a whole range of benefits, from cashflow management to the monitoring of aggregate exposure.

The most innovative solutions, combine sophisticated business intelligence with state-of-the-art analysis and reporting capabilities designed to identify reinsurance-specific key performance indicators. Among other things, the solutions can identify trends in reinsurers' business by measuring; losses and reserves, claims, industry concentration, geographical spread, limits, product and service segmentation, and broker performance. They can highlight under-performing areas that are in need of immediate improvement, and can significantly improve management performance, operational administration and risk identification and mitigation.

By using key performance indicators to identify trends, reinsurers can progress beyond a snapshot derived from static data to an interactive, real-time picture of their entire business. Successful businesses are using this technology to their advantage, to stay one step ahead of the competition, and to help them underwrite more scientifically and more successfully for their increasingly demanding stakeholders.

Enhancing catastrophe models

Catastrophe modelling is central to the treaty reinsurance business. Reinsurers dedicate significant time and resources to the intake and adjustment of location-level risk information from carriers, and the running of third-party and proprietary risk models and analysis of model output. But considerable manual effort is usually involved in the preparation of data for the models, and analysis is usually deal-specific and driven by the output of a single model run. Furthermore, data is typically only available in layer-level aggregates for trending and book-of-business analysis.

Sophisticated catastrophe data warehouse solutions address these issues by providing significant benefits to reinsurers in three principal areas:

(1) Faster turnaround time: Much of the manual effort in reviewing, cleansing, adjusting, and repackaging exposure data sets is eliminated. This results in faster modelling turnaround time, quicker decisions and quotations, and better hit ratios.

(2) Greater process consistency and control: Process automation brings with it greater consistency and auditability of this key step in the submissions process. This reduces the likelihood of human error in a high-risk operational area.

(3) Better holistic risk information: A consolidated repository enables analyses that are difficult or impossible in most organisations, including trending and categorisation of exposure, accumulations, or losses for a common carrier portfolio over time. It also maps aggregate exposure, accumulation and expected losses across carriers and books of business and facilitates detailed cross-carrier portfolio-level analyses based on location-level risk characteristics. And it achieves more precise and detailed impact assessments of actual catastrophes by providing cross-treaty exposure estimates based on event locations.

Insurance is a long-established industry with a reputation for conservatism. But it also has a reputation for entrepreneurialism. Today's leading business intelligence solutions bring together the best elements of those two traditional characteristics and wed them to sophisticated analytical techniques to help produce a business model which Einstein himself might have approved of.

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@postonline.co.uk or view our subscription options here: http://subscriptions.postonline.co.uk/subscribe

You are currently unable to copy this content. Please contact info@postonline.co.uk to find out more.

How maritime insurers are helping shipowners decarbonise

Following the European Union’s Emissions Trading System coming into force for the maritime transport industry on 1 January, Fiona Nicolson explores how shipowners, operators and insurers have come to terms with the implications and effects of the new regulations.

You need to sign in to use this feature. If you don’t have an Insurance Post account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here