Follow the fortunes
For years, the re/insurance community has been criticised for its apparent unwillingness to embrace technology. Market initiatives such as WIN and RINET have stumbled and fallen, while electronic placing, tabled in the 1980s, was almost universally ignored on implementation.
With examples such as these, the criticism would appear to be justified; as the dot.com revolution was embraced by other financial service sectors, heralding the advent of internet banking and stock trading, the reinsurance sector in particular lagged in a highly visible way. Although certain personal lines covers lent themselves to online purchasing, the reinsurance business argued it was too technical, too complicated, too far removed from a commodity-type product and too dependent on face-to-face trading. To a certain extent, all of these are true. But only to a certain extent.
Towards the end of the 1990s, some individuals recognised that parts of the reinsurance business could be streamlined and accelerated using new processes available in the internet age. Reinsurance broker Benfield Greig pioneered online tracking of premiums and claims in the late 1990s, enabling its clients to keep abreast of developments in their accounts using a secure internet site. On the placing side, a number of entrepreneurs and reinsurers foresaw online trading of reinsurance capacity as the next growth area, and developed secure trading sites accordingly. Although the vast majority of these sites survived the dot.com collapse, more recent events have seen a decline in their numbers. There was little doubt the market for trading capacity was oversupplied with options, and the fallout was a matter of time. Those with strong support, such as inreon - backed by industry giants Munich Re and Swiss Re - looked like good bets to survive the fallout, and events have borne out that belief.
Innovative minds prosper
At the same time, those with an original proposition also looked set to weather the storm. RI3K is one outfit that has developed from providing a trading platform to adding a series of options including an internet-based service offering back office processing and administration, as well as payment processing. This is probably the first commercial competitor to Ins-sure, the organisation resulting from the merger of Lloyd's Policy Signing Office (LPSO) and the London Processing Centre (LPC), a facility for London company underwriters. Spinning off the LPSO and LPC into a commercial business was the first step in the current London market reforms. The so-called London Market Principles (LMP) are a proposed code of practice for London-based business, and plan to evolutionise - rather than revolutionise - the antiquated processes still inherent in placing business. Worries that brokers, traditionally to be seen trudging around the Lime Street area of London's financial district, will find themselves obsolete in favour of screen-based trading are denied by those involved in developing the systems. Instead of wasting time and shoe leather walking from underwriter to underwriter, brokers will be able to focus on servicing their clients, fulfilling the increased demand towards value-added services, claim the market authorities responsible for developing LMP.
It is not just at market level that technology is making inroads within the reinsurance sector. Although one of the consequences of merger and acquisitions activity has been the painful process of combining old-fashioned legacy systems, the development of new systems such as XML has made accessing and using information stored in reinsurers' databases a viable option. The historic data held at both company and broker level can provide sound management information, as well as help identify risk trends. Combining information from a number of sources, such as the databases now collated by the US-based Insurance Services Office, provides even stronger base data for underwriting decisions, though, as in any industry, the quality of those people interpreting the data is as important as the information they are working from. As Alastair Mair of Eurobase comments in his article later in this special report, "No company that wants to survive in the 21st century can afford to ignore the new business environment created by the internet." Nevertheless, speed, accuracy and cost cutting are all crucial business practices in the current environment that rely on powerful and reliable technology.
Traditionally, reinsurance is a business which follows other industries as they develop. It is likely that this facet the business has saved it from the sometimes crippling experiences of other industry sectors, forced to write off many millions for failed technology investments. As long as reinsurers continue to follow the fortunes, keeping a sharp eye on the possibilities offered to improve their businesses and processes, technology will play an ever-growing, but well-tempered, role in strengthening their position.
Sarah Goddard is the editor of Global Reinsurance.