A new white paper from reinsurtech firm Supercede highlights a pressing industry issue: the silent crisis of unreliable reinsurance data and its costly consequences for cedents.
The company explored this challenge through interviews with more than 30 senior global reinsurers, brokers and cedents. It found that poor data is more than just an inconvenience; it has a significant financial impact on results. Cedents bear the costs directly through increased reinsurance costs, reduced capacity and missed opportunities for innovation.
Rewards and penalties
Across the industry, Supercede has shown that reinsurers are united in what they expect from their cedents: improvements in the standard of data submitted. Those who do so will be rewarded, provided they continue to provide better data, while those who do not will continue to be punished.
Research cited in the whitepaper shows that the quality of submission data varies widely across the market, with most respondents noting significant variations even within the same regions and lines of business. Poor data quality has consequences not only for cedants but also for brokers and reinsurers.
Foremost among these is price increases, with “pricing load” becoming the norm as reinsurers face more uncertainty due to poor quality information. Brokers and underwriters, on the other hand, will see value-adding analytical activities postponed to allow time for manual data manipulation, with this inconvenience ultimately resulting in reduced goodwill.
In the face of these challenges, reinsurers are looking to raise the bar on quality, with most keen to invest in modernised portfolio management tools that rely on accurate data to operate. Cedents and brokers are also playing their part, with companies using new technologies to improve the quality of submissions.
“We want to be able to reward cedents for providing us with good data in our pricing; unfortunately at the moment we often have to include uncertainty charges for poor or incomplete data,” said Jonathan Gale, reinsurance chief underwriting officer at AXA XL.
Data mistrust tax
Another striking revelation in the report is the heavy “data mistrust tax” imposed by reinsurers due to vague or inconsistent data. This often results in a significant 10% increase in reinsurance rates, impacting both loss and combined ratios.
However, reinsurance protection is not better if cedents pay more for the same coverage. Supercede noted that CEOs who fail to provide their ceded reinsurance teams with budgets to build better submission packages should reconsider, especially when outward spend is in the tens or hundreds of millions per year.
“Pricing loads are often implicit: actuaries and underwriters will make conservative assumptions to account for uncertainty in data and risk,” said Hetul Patel, chief actuary at Liberty Mutual Re. “This is built into the underwriting price.”
Incomplete data sets
Adding to the complexity of the landscape, cedents that provide incomplete data sets are often excluded from bespoke assessments. Instead, they are lumped into broad portfolio generalisations, missing out on bespoke, more favourable terms.
In general, those that are easiest to work with are prioritised, while those that are more cumbersome may not receive the best underwriting options. Supercede said underwriters are right to move away from cedents that are harder to work with, as reinsurers need to build their portfolios more efficiently, even if it means some are left out.
“We believe that high quality data is essential for a well-functioning reinsurance market, but our research shows that current practices fall far short,” said Ben Rose, president of Supercede. “By shining a light on the issue, we hope to motivate positive change across the industry.”
In other reinsurance news, Supercede has been selected by the Ascot Group to prepare and manage all of its future reinsurance treaty placements.
