The insurance industry in general, and reinsurers in particular, have been on the sidelines as even the most cautious financial services providers experimented with the internet, learned its potential and now accept it as an essential tool in their day-to-day business. There have been some early adopters; however it's time for all reinsurers to begin reaping the bottom-line benefits the internet makes possible.

To be effective and successful in satisfying client needs, any reinsurer must nurture personal relationships with clients, examine past loss experience, correctly analyse other key quantitative data, assess future exposures and master the complexity of risk transfer. The internet is no substitute for any of those vital tasks. Instead, it can help reinsurers perform those tasks more easily, more efficiently and more quickly - all of which can improve profitability.

It is no secret that the reinsurance industry has been experiencing soft market conditions for some time, and that significant losses in the past few years have hindered the ability of many reinsurers to write business at profitable levels. While current rate increases will certainly improve the picture, that is not a complete answer for anaemic profit margins.

Meanwhile, we have seen the traditional boundaries between primary insurers and primary reinsurers blur as each try to penetrate the others' relationships, provide more coverage and compete in more lines of business. At the same time, primary reinsurers have been creating more customised program offerings, such as alternative risk transfer programs or enterprise risk solutions, which create more complex structures for risk mitigation and risk coverage.

All of these factors make it important for reinsurers to have more and better information quickly, and to increase the transparency of transactions. The internet can be of great value in building closer relationships with customers and managing the rapidly changing environment in which reinsurers must operate.

For instance, intelligent use of the internet makes it possible for reinsurers to easily collect significantly more loss information about the risks they are covering. An internet platform also can make it possible to quickly see the underlying primary loss information, which makes it easier to assess the true exposures being faced in writing many lines of reinsurance.

The communications capabilities of the internet can make it possible for reinsurers to be in closer contact with the ultimate clients in a transaction as well as with the primary insurers the reinsurers view as their clients. In other words, the internet can enable reinsurers to operate in collective and collaborative ways that have not been possible in the past.

Through the internet, which is always available and can be accessed from almost anywhere, reinsurers can better take advantage of intellectual talent by sharing it more broadly over a wider geographic area. This accessibility and ease of use also can facilitate the application of the more sophisticated risk analysis and aggregate control tools being developed throughout our industry.

In addition, internet capabilities can make it feasible for reinsurers to gather information about renewing a program more than just once a year. And, overall, it can help establish a co-operative working group between reinsurer and insurer, making for a much closer relationship. Of course, migration to the internet is not without challenges for the reinsurance industry.

My experience has been that the reinsurance industry is and will remain a relationship-oriented business. Clients want to know the quality of the paper offered by the company, the individual strengths of the underwriting team, and the flexibility and quality of the underwriting and claims adjusting processes when addressing unexpected contingencies. Most of all, they want to be reassured that their reinsurer will be there to provide the promised coverage in bad years as well as the good years. That takes a good deal of relationship building, which cannot be done through the internet. However, the internet can add value in strengthening important relationships by making it possible to maintain closer, more frequent communication and to easily share and transfer documents and transaction information and analysis.

I also have found that many people in the reinsurance industry are comfortable adopting analytical tools and processes for examining quantitative assessments of their exposures, but they may be uncomfortable sitting in front of a computer terminal and conducting business electronically. The secret here is to think of the internet as a way of enhancing how you do business, not as a substitute.

As you incorporate the internet as part of your reinsurance business, keep these items in mind:

  • begin by focusing on the opportunities that can produce the best value for your company;

  • as the company builds experience with the internet and achieves successes, it becomes easier to expand your use of the internet;

  • identify the skills and abilities required for successfully operating on the internet and then make sure there are personnel within your organisation who have those skills and can be take advantage of opportunities as they arise;

  • remember, not everyone can adapt easily to doing business this way. Find the right people to focus on internet opportunities; and

  • don't assume you can participate in every internet initiative. There is a learning curve inherent in using the internet. The process requires management focus, time and resources. Companies that try to participate in more initiatives than they are ready to handle will have a long string of mediocre failures instead of one or two bright successes

    In moving prudently yet confidently, reinsurers will find the internet can give them the opportunity to:

  • create customised channels of communication between themselves and their clients;

  • become much better informed about the risks being written and much better at assisting in structuring reinsurance programs;

  • significantly reduce administrative expenses associated with acquiring prospects, underwriting new business, capturing and storing information quickly, easily and in ways that can be utilised for writing profitable renewal business; and

  • access more business over time as reinsurers build a presence on and experience in using the internet to conduct business.

    Already, some individual companies have begun developing proprietary reinsurance models and there are a few emerging companies trying to build open, neutral marketplaces for reinsurance on the internet. The value of an open, neutral marketplace is that it allows an insurer to access a number of reinsurers while giving reinsurers the ability to access multiple potential clients.

    Also, an open marketplace with many participants allows development costs to be shared by the participants, reducing internal risks and avoiding the costs of establishing proprietary capabilities. In addition, an insurer which wants to work with four or five markets may not want to spend time reviewing four or five opportunities across multiple websites. It is easier to work in a single professional marketplace environment.

    At dotRisk, we have been up and running for nearly a year, establishing a collaborative, professional environment in which complex risks can be traded on the internet. dotRisk, with the input of various companies, has designed and shaped a marketplace to meet the needs of the insurance and reinsurance industries.

    dotRisk is neither an auction nor a platform for comparative shopping. Instead, it provides confidential, secure communication and collaboration for providing reinsurance coverage, regardless of whether a broker and numerous carriers are involved or only two companies are working directly with one another.

    And it's not just about the ceding of risk from primary to reinsurer; our goal has been to provide a venue for multiple aspects of reinsurers' day-to-day requirements. Specifically, reinsurers can use our technology and our platforms to negotiate through the entire settlement process with as many ceding claimants or retrocessionaires as are needed. Perhaps more important, we have achieved a level of security and technology functionality that permit the reinsurer not just to accept risk and settle claims, but to package bundles of risks and exposures into financial assets which can be freely traded on the dotRisk ClaimsExchange. The dotRisk site supports all of this functionality.

    As is the case with any market, the reinsurers which adopt internet tools early will have a number of advantages.They can participate in the development and shaping of the marketplace, access some early trading and potentially see new business opportunities, more quickly identify ways to reduce costs and see bottom line benefits faster. The use of a marketplace can also accelerate the receipt of premiums so reinsurers can boost their return on investments.

    At dotRisk, we have strived to create an internet solution for the insurance industry that preserves all of the traditional principles of risk proposal, negotiation, acceptance and risk management. There are no shortcuts in writing reinsurance coverage. Nonetheless, the internet makes it possible to significantly reduce administrative costs, reduce the time it takes to put a program together, harness a larger amount of information, take advantage of templates and libraries of coverage forms and previous examples of products, and access historical loss and modeling information. All of this gives reinsurers the means to build tailored programs in an efficient, fast, cost-effective way.

    Mr. Forness is President and Chief Operating Officer of dotRisk Limited, the digital commercial insurance and claims market. He has extensive experience in all aspects of insurance, reinsurance and investment company operations having previously held positions at Odyssey Re, RiverStone Management and Prudential. Readers can access the company at Mr. Forness can be reached at