Modernization of Reinsurance Platforms: The Inevitable Transformation

In recent years, we have witnessed significant events that will profoundly impact the reinsurance market. Particularly, the natural disasters associated with climate change and the COVID-19 pandemic demand a rethinking of our approach.

Climate change can no longer be ignored. According to NOAA’s temperature measurements, the year 2020 was the second-warmest on record, leading to a dramatic increase in the number of natural disasters. In 2021, insured damages from tropical cyclones, droughts, floods, and fires exceeded $100 billion USD. The floods in Europe in July 2021 alone caused nearly $25 billion USD in damages, making it the costliest weather event in European history.

These events were accompanied by numerous secondary incidents of low to medium severity, accounting for 71% of insured damages related to natural disasters. The most costly damages were caused by severe storms and wildfires.

As a result of these developments, property reinsurance premiums in Europe were increased by 50%. In Germany, reinsurance rates rose by 15-50%, in Switzerland by 20-50%, and in the USA by 10-25%. Globally, property reinsurance increased by an average of 10.8%.

The COVID-19 pandemic, which began in 2020, has also turned the insurance market upside down. The rapid surge in insurance claims and a 32% increase in life insurance policies were unforeseen. The damages caused by COVID-19 are estimated at one trillion USD per month.

Given these factors that have brought about significant changes in a short period, and considering the impact of increased damage volume and value, it is essential to manage the proceeds from reinsurance contracts properly. Otherwise, false damage claims could lead to substantial financial losses for insurers.

Insurance companies are now at a critical juncture where the modernization of their reinsurance platforms is of paramount importance.

The 5 Pillars of Modernization

The focus of this article is on the five pillars of modernization. We concentrate on how the modernization of the reinsurance platform can minimize potential financial damages to the company’s results.

1. Automation of manual processes

Currently, many insurers manage their reinsurance activities manually using spreadsheets or outdated systems with limited functionality. The reasons for this vary, including inadequate investment in the resources required for digital transformation or low priority given to it. However, manual handling of large volumes of data and complex calculations is susceptible to human errors.

2. Human error

As mentioned earlier, when reinsurance claims/events are handled manually, the potential for human errors becomes significant. Here are some common errors:

  • Damages are not assigned to the correct reinsurance contracts or not allocated to all contracts.
  • Claims are mistakenly attributed to the wrong reinsurance contracts, leading to unjustified recoveries.
  • Claims are assigned to reinsurance contracts, but the calculations are incorrect.
  • Inadequate handling of claims accounting and technical settlements result in delayed or missed recoveries.

3. Process optimization

As reinsurance programs become increasingly complex, individual processes also grow in complexity. Complex processes are challenging to maintain, leading to vulnerability and inaccuracies. At the same time, reinsurance processes must be comprehensive, covering all aspects and calculations of the reinsurance program.

4. Granularity and data control

All information related to policy and claim transactions must be clearly detailed to ensure visibility and accuracy. Missing information about policies and claims introduces additional sources of errors and ultimately poses a risk to the precision of calculations and the loss of claims. With such large volumes of data, comprehensive control is only achievable through adequate data management and suitable tools.

5. Integration

Inappropriate interfaces between modules for reinsurance, policies, claims, and accounting can result in errors and delays in premium processing, the creation of statements and bordereaux, and claim settlements. A clear and seamless digital straight-through process is the only way to achieve proper results.

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