Demystifying Policy Stacking in Reinsurance

Reinsurance is complex and bespoke; policy stacking is an essential aspect of proper risk management and ensuring accurate coverage for your policies.

We’ll dive deep into the depths of policy stacking, highlighting its significance, processes, and the growing role reinsurtech plays in automatically detecting and resolving stacked reinsurance policies.

What is Policy Stacking in Reinsurance?

Policy stacking in reinsurance refers to a strategic approach to managing risk by combining or aggregating various insurance policies or claims.

It's a nuanced form of policy aggregation, crucial in scenarios where multiple policies or claims need to be considered collectively for a single risk or a set of related risks.

Types of Aggregation

Horizontal Aggregation: This approach deals with managing the total exposure across different segments of risk. For instance, entities of a multinational company where each entity has its own insurance policy, or different locations covered by the same policy.

Vertical Aggregation (Stacking): Stacking involves layering different levels of coverage. For instance, one policy might cover from zero to one million pounds, while another covers from one to two million pounds, thus creating a cumulative coverage.

Reasons for Stacking Policies

Policy stacking is prevalent in situations such as:

  • Subscription Market Approach: Small shares of coverage from different underwriters are combined to form layered coverage.
  • Umbrella Coverage: Additional layers of coverage sit in excess of primary policies, commonly seen in travel insurance.
  • Regulatory Compliance: Due to regulations like post-Brexit restrictions, companies often manage insurance through multiple policies across different regions.
  • Delegated Authority: This involves managing policies bought through brokers or managing general agents (MGAs), which might overlap or interact differently.

Complexities and Edge Cases

Stacking often presents complex scenarios, such as in construction and engineering insurance.

Companies might have both annual coverages and specific project coverages, requiring sophisticated aggregation strategies.

Multi-coverage policies are also sold where a single policy section could cross into multiple lines of business or multiple policy sections could apply to a single line of business.

Accurately stacking policies is crucial for representing the true exposure to risks.

Misrepresentations can lead to inadequate reinsurance cover, affecting the underwriting process and risk management strategies.

Limitations of Traditional Methods

Traditionally, stacking is conducted using spreadsheets, which are prone to errors and inefficiencies due to manual data entry and limitations in handling large data sets.

Spreadsheets also don’t allow you access to granular underlying information once you have gone through an aggregation process.

Advancements in Reinsurance Software

Modern reinsurance software revolutionises the stacking process, ultimately leading to a better reinsurance buying strategy with accurate pricing and coverage.

It can manage vast data sets, apply complex matching rules, and use algorithms for identifying similar company names, thereby reducing manual efforts and enhancing accuracy.

With the advent of sophisticated reinsurance software, the industry is poised to overcome traditional challenges, ensuring more accurate and efficient management of insurance portfolios.

Philosophies in Stacking

Different schools of thought exist in stacking:

  • No False Positives Approach: Ensures accuracy in identified stacks but may miss some.
  • Broader Approach: Identifies potential stacks for review, offering more comprehensive coverage but requiring additional validation.

The Future of Stacking

Future advancements in reinsurance software aim to further streamline the stacking process, such as saving stacking criteria across years for easier policy renewals.

If you’d like to see how we automate policy stacking, get in touch.


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Jerad Leigh
Ben Rose
Jess McCausland
Tom Spier
Livvie Sandells