Communication and Information Technology in the Reinsurance Business

Reinsurance provides financial stability to insurance companies by increasing their solvency. Though some aspects of the reinsurance business are quite similar to insurance, reinsurance is a more complex process.

Functions of Reinsurance

• Increase the reinsured capacity of underwriting
• Financial stability of the reinsured
• Stabilization of claim ratio
• Accumulation of claim under different classes
• Spread of Risks
• Protection of solvency margins
• Stabilize profitability
• Enables an insurer to consider unusual proposals which the company normally would not underwrite
• Extend the area of expertise to the insurer
• Helps to absorb newer risk exposures, etc ..,

An accurate and efficient information system helps in increasing the credibility of the primary insurer and helps in renewals of treaties. Maintenance of accurate statistics relating to acceptances and their speedy and timely availability is vital for the successful conduct of the reinsurance business.

Some of the statistics that help reinsurance for effective control are

• Treaty wise quarterly statistics
• Broker wise Statistics
• Country-wise statistics
• Insurer wise statistics
• Proportional and non-proportional statistics
• Class of business statistics
• List of overdue accounts
• List of outstanding balances

The essential features of a review are whether:

1. The accounted premium is consistent with the estimated premium taking into account the development normally to be expected. A sudden increase or decrease calls for review with the insurer or reinsurer concerned
2. The profit commission statement agrees with the accounted figures
3. The release of reverses and portfolio movements are in accordance with the treaty provisions
4. The overall result of the treaty is a profit or loss,
5. The rendering of accounts and settlement of balance is prompt
6. Treaty documents were received or not

At one time the insurer passed copies of all papers to reinsurers /brokers who then did all the necessary work to produce the reinsurance account themselves. Today, Electronic Data processing techniques have made it possible for insurers to produce reinsurance accounts themselves at a minimum cost thus saving the reinsurers/brokers a great deal of administrative effort.

Major and significant developments have occurred in terms of web-based portals, online reinsurance exchanges, and EDI.

Electronic Data Exchange

EDI enables a lot and reduces the TAT on exchanging the data from one company to other in a prescribed format

A variety of technologies and Formats are involved in electronic data exchanges are like

mModem (asynchronous and synchronous)

FTP, SFTP and FTPS,Email,HTTP,AS1,AS2,AS4,OFTP (and OFTP2),Mobile EDI And more technologies

Protocols used are : HTTP/HTTPS,POP3/SMTP,OFTP/OFTP2,SOAP,WebDAV,X.400

EDIINT working group:

EDIINT AS1 (extension to mail transport)
EDIINT AS2 (based on HTTP transport)
EDIINT AS3 (based on FTP transport)
EDIINT AS4 (based on WebServices)

Formats like ANSI 🡪X.12, X12, X12 Document List, X12 EDIFACT Mapping,

XML 🡪cXML,xCBL,ebXML,railML,RosettaNet,UBL,UNIDOC , and others like Tradacoms,EDIFACT,Cefic — Chemical,GS1 EANCOM — Retail,EDIBDB — Construction,EDIFICE — High Tech Industry,EDIFURN — Furniture,EDILEKTRO — Electro,EDILIBE — Books,EDITEC — Sanitary,EDITEX — Fashion,EDIFOR/EDITRANS — Transports & Logistics,EDIWHEEL — Wheels & Tires,ETIS — Telecommunication,STAR — Standards for Technology in Automotive Retail,SPEC2000 (Airline Industry) (external link),FORTRAS — Transports & Logistics etc..,

Fixed-length formats - EURITMO

Separator formats - CSV/TSV/DSV

Usages of EDI in a critical area of operation from the reinsurance parlance

Accumulation hazards form an inherent part of the reinsurance business and careful control is required to be maintained on exposure due to earthquakes, storms, tornado,s, and other catastrophic perils in different parts of the country and the world.

The frequency, timing, and severity of such phenomena can vary from area to area. The database in this respect is created or the information can be taken from the National Catastrophic or Disaster management. Thereby such information will be handy to the underwriters to access and analyses the risk causes because of such an accumulation

1. Control of accumulation
2. Earthquake and accumulation of hazard
3. Assessment of Cumulative commitments

Gathering and Analyzing statistics

It is therefore necessary to have sufficient data processing arrangements to gather and analyze data.

A reinsurer in the main has to monitor the performance of

• Individual treaties
• The main classes of reinsurance business
• The business obtained from different countries and regions
• Claims trends and provisions
• Exposure etc.,

The use of the information produced from a statistical base include

• Production of accounts
• Production of marketing information
• Production of rating information
• Premium and claims trends
• Assessments of outstanding claims and IBNR reserves
• Financial planning

Guidelines for evolving a Reinsurance analytical system

The following are the main aspects to be looked at when evolving a statistical system

1. Production of statistics for each of the outward treaties
2. Preparation of outward accounts and various other books of records
3. Requirements of reconciliation of balances and review of cash flows
4. Review of business accepted for the purpose of ascertaining its profitability
5. Review of reciprocal exchanges
6. Complete analysis of portfolio underwritten and to ascertain exposures
7. Statistical and accounting requirements for retrocession treaties
8. Information on large claims
9. Ascertaining aggregate loss amount due to one catastrophic event m which may affect the reinsures through several treaties

Author: Shiju V