Reinsurance is a complex and multi-faceted process that involves a lot of data gathering, analysis, and decision-making.
Cedents, the insurance companies who purchase reinsurance to spread out their risk, often struggle to get the best reinsurance pricing due to the time-consuming nature of the process.
This can lead to a mismatch between what is initially requested in budgeting meetings and the prices they receive back from the market, resulting in unpleasant pricing surprises and coverage changes.
However, with the advancement of reinsurtech, cedents now have the opportunity to leverage their data more efficiently, freeing up valuable time and allowing them to prepare better for their reinsurance purchases.
Through tools offered by modern platforms, automating data extraction, cleansing, and the organisation process can be significantly enhanced with huge time-saving effects.
This time can now be utilised by their smartest people, the actuaries and ceded re teams, to think about the business and how to price their exposures.
One approach cedents can take is to prepare their data closer to the renewal cycle, allowing for greater clarity around how the underlying book is performing and more accurate predictions for the year ahead.
Another approach is to use the interim window for diving deep into the data and understanding what is actually happening, helping to better plan for budgets and preemptively address any exposure concerns.
The key to this process is to clear the "fog" around data.
Currently, the data is exported from databases and legacy systems into CSV or Excel files, and people are trying to manually mash it together, resulting in a lack of control for the cedent.
This can be achieved by building a close relationship with your broker, who will work to understand your objectives and the different options available to achieve these objectives.
One of the biggest challenges brokers face when working with their cedents is the lack of clear data, which has a knock-on effect when submissions are sent into the market with underwriters adding extra loads to their quotes to cover their uncertainty, which leads to higher prices for the cedent.
By reducing uncertainty, cedents can get better pricing in the market.
Greater command of their data allows cedents to have data-driven meetings of their current situation and projections, giving reinsurers a clearer understanding of the cedent's situation and allowing them to make more informed decisions about their commitments.
Transparent, data-driven conversations between cedents, brokers and reinsurers allows cedents to present themselves in the best possible light and improve their ability to assess the options available, including understanding the impact of increased retentions.
This will also help to reduce the stress that often occurs during the last weeks of a renewal period.
By having a clear understanding of their situation and presenting it transparently, cedents can build trust with their reinsurers. Greater trust helps build stable partnerships. Stable partnerships are the key to achieving the best possible results.
Reinsurance is a unique industry which remains highly reliant on trust.
It’s crucial for companies in this field to establish trust with their partners and clients right from the start.
By openly addressing potential risks and demonstrating how they are being addressed, companies can show their partners how trustworthy they genuinely are.
This leads to stronger relationships and, ultimately, better outcomes for all parties involved in a reinsurance transaction.
The Fruit and Vegetable Analogy for Buying Reinsurance:
On The Reinsurance Podcast, Ben made an excellent analogy for how purchasing a reinsurance programme is like buying ingredients for a meal:
A student is given some cash by their mother and tasked with purchasing ingredients for a family meal. Walking around the shop picking up various fresh ingredients, they notice that all items are pay-by-weight. As the basket fills up, they approach the counter, hopeful but nervous that the items they’ve accumulated will total less than the handful of cash they’ve been given. If not, they’ll be left with two options: returning some items and having a less than sufficient meal, or going back to mom and asking for more cash. Neither is ideal.
Without the ability to evaluate the cost in real-time, this makes for a tense experience at the till.
Reinsurance purchasing shares many of these same challenges. The cedent has a clear goal in mind: to procure the coverage needed to fully protect their balance sheet. However, it isn’t easy to assess the price of each element besides some high-level assumptions based on previous experience.
This analogy highlights the difficulty in selecting the right balance of elements to get the most reinsurance for the best price and making the most informed decision on which programmes to prioritise.
If you had a "super(cede) scale" that allowed you to weigh your portfolio before going to the market, you would have a much better understanding of how much money you would need and what your budget would allow.
This clarity would allow you to make better decisions about what types of "fruit and vegetables" to purchase and how much of each.
On the other hand, if you are forced to make these decisions at the till, you may end up with only half the "carrots" (i.e. the coverage you need) and must adjust your plan accordingly.
Reinsurance is an essential component for ensuring the financial stability of a company, but it can also be a complex and confusing process.
With so many deals on the market, it can be challenging to determine the right coverage for your needs.
This is why it is essential to have a clear understanding of what you're looking for and why, as well as to be able to communicate that information effectively to your reinsurance partners.
One of the biggest challenges in the reinsurance market is the lack of time and resources to properly evaluate all of the options.
This often results in a rushed decision-making process based on basic metrics and assumptions rather than a thorough evaluation of the company's needs and the market's offering, and commonly, a simple renewal of what a cedent decided to do last year.
However, if a company has access to better data and a more informed understanding of its needs, it can lead to a more focused and informed approach to purchasing reinsurance.
The key to overcoming these challenges is to have a clear understanding of what you're looking for and why, as well as to be able to communicate that information effectively to your reinsurance partners.
By having a clear understanding of your needs, you can work with your reinsurance partners to structure alternative arrangements that best meet your needs.
Another important aspect of purchasing reinsurance is credibility and pricing.
To get the best pricing, it is crucial to have the most informed and prepared conversation with the market about what you want to buy.
This means being transparent and honest about your needs, as well as having the data to back up your claims.
By having a transparent and credible conversation with the market, you can ensure that you get the best pricing and the best coverage for your needs.
By having a clear understanding of your needs, being able to communicate effectively with your reinsurance partners, and being transparent and credible in your negotiations, you can ensure that you get the best coverage for your needs at the best price.
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