Automation of outwards reinsurance is integral to meeting regulatory requirements, argues Bart Patrick.
For too long underwriting has been seen as the golden goose of insurance operations. Beyond cursory nods to the usefulness of reinsurance in the mitigation of risk and increasing capacity, it has always remained the unsung hero of any operation underwriting risk.
Proposed changes to the legislation supporting insurance and reinsurance companies' operations will alter this perception of outwards reinsurance. In moderating the three sources of regulatory risk, credit, operational and market, companies will soon realise that reinsurance is intrinsic in meeting these obligations.
Without technology intervening in the processing of reinsurance collections, companies will find it increasingly difficult to prove that they have the necessary processes to support the achievement of regulatory compliance. This is particularly important for those companies subject to Sarbanes Oxley section 404; however, the impact goes further than this. It is a well-banged drum, but Solvency II will have a huge impact. Importantly, companies really need to understand that it is predominately a qualitative measure, and therefore the cost of the people effort involved in reaching compliance will make the technology part of the changes pale into significance.
Even those companies with some sort of automated reinsurance processing, where these systems are not fully integrated into the main administration, will find their processing regimes challenged.
The automation of outwards reinsurance should become a priority for companies. Firstly, it is an important factor in meeting regulatory compliance wherever a company is based. Secondly, compared to the people cost in reaching full compliance across the organisation, the cost of the IT associated with outwards reinsurance processing is minimal. The question to be asked of all companies processing their reinsurance in a manual, spreadsheet-driven format is, “why don't you sort the easy parts of the regulatory jigsaw before embarking on completing the picture?”