Untrustworthy data driving sizeable hike in reinsurance premiums

New whitepaper describes costly effect of unreliable insights from the sector

Untrustworthy data driving sizeable hike in reinsurance premiums

Insurance News

By Kenneth Araullo

A pressing issue across the industry comes under the spotlight in a new whitepaper released by reinsurtech Supercede: the silent crisis of unreliable reinsurance data and its costly implications for cedents.

The firm delved into this challenge by conducting interviews with over 30 senior global reinsurers, brokers, and cedents. The findings revealed that subpar data is more than a mere inconvenience; it is a substantial financial burden on results. Cedents are directly bearing the cost through escalated reinsurance expenses, reduced capacity, and missed opportunities for innovation.

Rewards and punishments

Across the industry, Supercede revealed unity across reinsurers in what to expect from their cedents: improvements in the standard of submission data. Those which do so stand to be rewarded, provided they continue to provide better data, while those who do not will continue to be punished.

Research cited by the whitepaper unveiled that the quality of submission data varies heavily across the market, with most of the respondents noting substantial variation even in the same regions and business lines. With poor-quality data comes consequences, which affect not only cedents but brokers and reinsurers as well.

The foremost of these is price increases, with “pricing load” becoming standard as reinsurers face more uncertainty that comes from substandard information. Brokers and underwriters, on the other hand, will see postponements for value-adding analytical activities to allow time for manual data manipulation, with this inconvenience ultimately ending in lower goodwill.

With these challenges becoming prevalent, reinsurers are looking for a rise in the bar for quality, with most keen to invest in modernised portfolio management tools that depend on accurate data to operate. Cedents and brokers are doing their parts as well, with entities using new technologies to drive a rise in submission quality.

“We want to be in a position to reward cedents for providing us with good data in our pricing; unfortunately, at the moment, we often have to include uncertainty loads for poor or incomplete data,” said Jonathan Gale, reinsurance chief underwriting officer at AXA XL.

Data distrust tax

Another standout revelation in the report is the weighty “data distrust tax” that reinsurers impose due to vague or inconsistent data. This often results in a significant 10% surge in reinsurance rates, impacting both loss and combined ratios.

That said, reinsurance protection is not better when cedents pay out more for the same coverage. Supercede noted that CEOs who are unsuccessful at equipping their ceded reinsurance teams with budgets for building better submission packs should reconsider, especially if outwards spend goes to tens or hundreds of millions a year.

“’Pricing loads’ are often implicit: actuaries and underwriters will make conservative assumptions to allow for uncertainty in the data and risk,” Liberty Mutual Re chief actuary Hetul Patel said. “This will be built into the technical price.”

Incomplete data sets

Adding complexity to the landscape, cedents providing incomplete data sets often find themselves excluded from tailored evaluations. Instead, they are grouped into broad-stroke portfolio generalisations, missing out on bespoke, more favourable terms.

In general, those easiest to work with are prioritised, while more cumbersome ones might not get the best underwriting options. Supercede said that underwriters are right to walk away from cedents who are harder to work with, as reinsurers need to build their portfolios more efficiently, even if it means that some will get left out.

“We believe high-quality data is essential for a well-functioning reinsurance market, but our research shows current practices fall far short,” Supercede president Ben Rose (pictured above) said. “By shining a light on the issue, we hope to motivate positive change across the industry.”

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