Reinsurance is often relegated to a tactical back-office function – a cost centre for regulatory compliance and balance sheet protection.
But forward-thinking insurance leaders recognise reinsurance’s immense potential to drive growth, optimise capital efficiency, and spur innovation when tightly aligned to strategic objectives.
In this article, we’ll explore principles and best practices for elevating reinsurance as a core capability to create a competitive advantage.
Insurers can extract greater value from reinsurance as they advance along the “reinsurance maturity curve.”
Early on, reinsurance provides basic solvency compliance.
But over time, reinsurance transitions from a basic requirement to a powerful optimisation lever.
For less mature insurers, prudent reinsurance structures minimise the capital required to support underwriting activities.
This enhances returns on equity.
As insurers grow in scale and diversification, they can generate substantial fee income by offering reinsurers access to underwriting risk in exchange for ceding commissions.
Reinsurance can also fuel expansion into new geographies, product lines, and customer segments.
When tightly integrated, reinsurance becomes a launch pad for innovation.
Constructing win-win partnerships with reinsurers is crucial for extracting maximum value.
Just as the most successful public companies consistently achieve quarterly guidance, reinsurance partners want predictability.
Meeting or exceeding the targets outlined in reinsurance renewal submissions establishes credibility with underwriters.
This prompts reinsurers to offer greater capacity, relax terms in uncertain times, and embrace new reinsurance structures to fuel growth initiatives.
However, inconsistencies between actual results and submitted business plans make underwriters sceptical of provided data.
And this leads to inflated pricing and lost income opportunities.
Delivering on promises signals good faith and strengthens your relationships with your reinsurers.
Legacy processes and systems often prevent reinsurance programs from reaching full optimisation.
Two issues frequently arise:
Modern data architectures provide accurate information faster.
And this is something ceded reinsurance teams can no longer ignore.
With clean data earlier in the process, reinsurers can thoroughly analyse innovative new reinsurance structures tailored to the insurer’s strategic goals.
By resolving the issues around latency, all that trapped value is unleashed.
Pragmatic outwards reinsurance teams focus first on smaller enhancements that will compound over time.
The priority is improving data consistency, accuracy, and timeliness through incremental upgrades.
And that doesn’t mean another Excel macro.
Once reinsurers gain confidence in data quality, bolder conversations around reinsurance-driven growth become feasible.
Robust platforms and trusted partnerships combine to expand reinsurance’s strategic impact.
Thinking big starts small.
Forward-looking insurers now recognise reinsurance expertise as a clear differentiator in the market.
With aligned reinsurance structures and seamless execution, cedents gain the flexibility to expand into target markets faster.
First movers who adeptly manage volatility via reinsurance can accelerate growth in emerging sectors.
As new entrants struggle with reinsurance compliance, disciplined incumbents use reinsurance as an offensive weapon to cement leadership.
Optimising reinsurance strategically requires buy-in across the organisation, not just the reinsurance team.
Education is essential so colleagues beyond the reinsurance function appreciate how aligned structures create value.
Transforming reinsurance into a strategic capability can’t be a one-time initiative – it requires ongoing commitment.
Continual focus on enhancing data and systems, evaluating emerging reinsurance solutions, and recruiting top-tier underwriting talent is essential.
Fostering a culture focused on reinsurance innovation ensures the function continues elevating in strategic influence over time.
Patience and persistence are critical.
Beyond internal teams, deep partnerships with specialised reinsurance software providers, brokers, and advisors provide invaluable expertise.
Their market insights and technical skills equip insurers to prepare and execute reinsurance deals, negotiate optimal terms, and access innovative reinsurance capabilities.
Brokers and advisors who understand the insurer’s strategic goals can design reinsurance programs tailored to those objectives.
Their independence and market view complement internal reinsurance expertise.
Truly strategic reinsurance requires regularly re-evaluating program design and performance.
Establish processes to examine reinsurance effectiveness in fueling growth initiatives and aligning with emerging corporate objectives.
An annual reinsurance optimisation assessment incorporating input from stakeholders across the organisation can uncover improvement opportunities and new ways reinsurance can add value.
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