Technology into the cloud
The issues facing C-level reinsurance executives remain similar from one year to the next. The specifics may change but the issues are, to a greater or lesser degree, much the same. In recent years, they have ranged from increased compliance and regulation, to making profi ts in tough markets and coping with record catastrophe losses. All of these issues have dominated many a meeting at both management and board levels.
"Executives need to be confident that they have access to a technology partner with the expertise to deliver within specified time frames, preferably across a range of services."
Making a surprising comeback to the boardroom, however, after a signifi cant absence, is technology. Reinsurance leaders have had their work cut out—whether achieving business growth through new territories, or maintaining viability against increased competition, they’ve clearly needed to fi nd ways to manage or control their businesses, more so than ever before. But these are not the catalysts responsible for technology’s resurgence. It is regulation—Solvency II specifically—that has obliged reinsurers to look at, and evaluate, the technology they’re using.
It may seem rather odd that regulation, which many see as having capital adequacy at its heart, would result in companies reviewing their technology landscapes. However it is, arguably, enterprise risk management that is really at the core of Solvency II, and it is enterprise risk which is forcing C-level executives to purchase new technology.
Most executives love a dashboard that will show, at any time of day, or in any part of the world, what is happening inside their business and why. It’s a vital tool, as it can truly aid sound decision-making, ensuring that decisions have a positive impact on the organisation’s future. However, it is not just this type of technology that has become the focus for decision-makers; the enterprise risk element is also being factored in, to ensure that technology, and the processes it supports, are being deployed across the organisation. The internal risks faced by all reinsurers include the use of technology and many of them are still reliant on old and disparate core applications. These factors are leading to ‘legacy IT’ being replaced with more modern, centralised platforms.
Underwriting is a crucial asset to reinsurance. As a discipline it drives growth and profi tability more than any other and, as it shapes the organisation’s approach to business, it is ultimately what makes the business unique. More informed underwriting means better risk management, allowing the business to meet current compliance commitments and increase shareholder and market value. Without access to accurate pricing, reserving and underwriting in real time, reinsurers run the risk of making ill-informed decisions which may prove costly.Historically, we have seen IT decisions taking place in a piecemeal, rather than a strategic, way. Clearly though, these decisions should betaken at board level, providing the ultimate assurance that objectives will be set and met, and that the full advantages of deploying new technology—such as operational effi ciencies, standardisation and improved reporting—are driven throughout the organisation and across all functions.
For reinsurers moving into new territories, the need to access information swiftly and in real time, is vital to success. Using one global system to do this leads to signifi cant cost and time savings, particularly as decision-making around pricing is more up-to-date and accurate. Another clear benefi t is that access to globally integrated information makes tracking key industry performance indices simpler, ensuring that effi cient capital management decisions are made to maximise underwriting profit.
Although underwriting is vitally important to any reinsurer, claims and asset management are also key, representing signifi cant cash fl ows in and out of any reinsurer. It is therefore essential that the technology platform used supports the needs of these two functions as it does the underwriting team. With insured catastrophe losses in 2011 in the $200 billion range, the management of inward claims and outward recoveries is high on any reinsurer’s priority list.
Consideration should not be given only to external-facing functions— internal ones are just as important, especially if the business is to ensure that the ‘lights are kept on’. Actually, it’s these functions that can benefi t most from a single platform. Internally focused teams provide the support functions to the reinsurance business, the place to which everyone goes when they need data, reports and analysis.
Reporting requirements imposed on reinsurers have increased exponentially under Solvency II. By having a single, globally deployed platform, organisations can access a central and updated source of consistent data. This provides the reporting required without having to go through any major data extractions, transformations or cleanup. While the level of reporting is onerous, there is no doubt that having a single platform to produce reports takes away a great deal of the hassle, saving significant costs and time. While it is clear that technology and the associated risks underpin the whole organisation, business processes and technology deserve due consideration if operational improvements are to be maximised.
If you think that improving operational performance is the preserve of only the large, multinational reinsurers, think again. A percentage of CSC’s work includes helping some of the smaller market players achieve a real difference, largely by using technology to punch above their weight, helping them to compete with similarly sized, and larger, organisations by providing agility and flexibility, with the added benefit of a lower cost base.
As you’d expect in an increasingly competitive market, competitive differentiators are more marked. Streamlining your business operations not only allows you to focus more effectively on other areas of the business, it also frees up increased capacity to serve your customers more efficiently. To this end, it makes sense to streamline less critical functions, such as accounting modules and management reporting, so that your organisation can devote sufficient time for more important business operations, while capitalising on the significant cost and time savings that can be gained.
When it comes to cost savings in the technology department, recent developments provide reinsurers with a host of options. Technology dashboards or core platforms can be deployed in a number of ways. Long gone are the days when the only option available was to build or buy the software and install it on your own infrastructure. It makes sense for reinsurers to consider hosted or cloud-based services, enabling them to ‘buy in’ the dynamic required to compete in today’s market at a reduced cost, so they can focus their energies on managing and growing the core functions of their business. After all, the cost to increase your in-house team and furnish it with the breadth and depth of skills to manage these systems can be significant.
That said, executives need to be confident that they have access to a technology partner with the expertise to deliver within specified time frames, preferably across a range of services, from basic administrative functions such as accounting, through to more sophisticated business processes, such as claims or reserving.
By moving to a hosted model, executives will have the time to plan and focus on the strategic needs of the business, rather than playing catch-up with the shortfalls in various systems and gaps in service. In addition, it helps the business to forecast costs for IT accurately, thus gaining transparency over cost and return on investment (ROI).
It offers too, a rare chance to take costs off the balance sheet, to lessen the variable and escalating costs often associated with IT, not to mention the depreciating asset that hardware represents.
Some might be concerned that moving to a new model will result in downtime in business processing, costing the business a tidy sum. However, moving to either of these models is a far cry from the IT implementation time frames of the past. For start-ups and those with growth aspirations, the added benefit is the option to pay as they grow, rather than pay significant upfront costs for something that might not fully utilise business skills, or achieve a ROI, for several years.
A clear understanding of your goals is essential to the success of switching to a different way of managing IT. It’s also important to stay with the plan once the goals are set, to ensure the best chance of success and to test durability. The reinsurance industry is, once again, being shaped by external forces. Enterprise risk has put the industry’s underlying technology and business processes back in the spotlight. Thankfully, there are many more options available to reinsurance executives today to solve these challenges. Changing your business or IT model is a golden opportunity to put this key component back at the heart of your organisation and address issues for which a solution might be long overdue. By doing so, the business will be fully prepared for the many and varied challenges ahead.
Michael Mackewich is lead principal, CSC Reinsurance, for the US, Bermuda and the Caribbean. He can be contacted at: email@example.com
Michael Cook is an associate partner in the consulting practice, CSC financial services, for Europe, the Middle East and Africa. He can be contacted at: firstname.lastname@example.org