By: Vijai SR, AVP - Leader for Insurance, Consulting and Transformation, CST

In January 2020, reinsurance markets started in an organized enough manner –programs were renewed, shares and participations rebalanced based on risk and client differentiation in some contracts due to evolving claim dynamics in new risks like cybercrime and residual liabilities. Overall, adequate capacity to secure preferred protection and coverage extensions on renewals across biz segments and geographies.

Calm before the storm – the flipside

The COVID-19 outbreak however, with its highly contagious virus caused lockdowns has brought trade, travel, manufacturing & commerce to a grinding halt, radically changing the business scenario. Insurers and reinsurers could not remain immune to the economic repercussions, with exposures to pandemic and the resulting recession risks seen across the property, marine, casualty, liability and contingency classes. Insurers across Life & Annuity, Property & Casualty, Healthcare and Specialty lines got severely impacted in core operational areas.

Renewals were delayed, new business was postponed, and clients started looking for new products, channels, pricing discounts, innovative technologies and even new regulatory compliance requirements.

Reinsurers have been severely impacted by the cascading effect:

• Capacity and ability restriction for closing large deals
• Collateral stringency, catastrophe bonds have become expensive as compared to treasury and government bonds where yields have come down
• Rate hardening causing financial pressures on customers facing acute liquidity crunch
• Evolving exposure in casualty & long tail liability (among others) due to pandemic
• Uncertainty about a second spike of the Coronavirus
• Litigation spikes due to the pressures in Business Interruption, Workers Compensation and similar LOBs

Navigating uncharted waters

This new scenario brings with it new challenges – scarce and expensive CAT bonds, shrinking capital sources, risks with no prior data, a surge in claims and lawsuits, new business imperatives. All these factors have forced reinsurers to rethink and reimagine their operating models.

Reinsurers need to brainstorm and have discussions around property renewals related to “secondary peril loss experience”, climate change, legislative impact, social inflation, reserve levels and more. In addition to the broader market pressures, individual portfolio dynamics and reinsurance outcomes are significant areas to analyze and take data-driven decisions.

Newer practices are being adopted, where collaborative risk management and value-added services are being offered by working with brokers and carriers for proper placement and optimal pricing, precision in CAT Risk modeling, leverage biometrics/ IOT, third party data sources to get a more granular view of pricing.

Technology to the rescue

Digital technologies are offering remedial options:

• Standardized templates with cognitive data intake and bordereau automation, electronic contract management by capturing clauses, exclusions, warranties, layers and reinstatements
• Aggregated Loss Data Triangulation, predictive model creation for COVID-19 type first time claims
• Underwriting using geo spatial, catastrophe, satellite and other info for rating and loss run analysis along with IOT-based products for loss prevention
• Cession computation using threshold limits and variants to recalibrate layer structures, have advanced algorithms (decile based or otherwise) for retrocession, recovery propensities in large claims and so on
• Lower cost structures by leaner operations, reinforced by AI, better data management for varied genres of RI contracts i.e. FAC, QS, XOL, SPL, Per risk/ event to name a few
• Using blockchain and other frameworks to consolidate data of entire industry.

Navigating to calmer waters

Reinsurers are also scaling up with global data consolidation initiatives, process automation template-driven interactions with brokers and carriers, legacy modernization, financial and accounting package implementation and migration of data centers to cloud for better economies and scalability.

To summarize, the industry’s support for the business community is of more paramount importance than ever before. Industry leaders can support trading partners and clients through these challenges, and they are doing so by innovative technologies such as IOT, Blockchain, Big Data/Analytics and Artificial Intelligence. So, IT budgets will be recalibrated to support human effort by artificial intelligence, and to upscale bandwidth for greater throughput and more efficient operations.

1. COVID-19 Impact Series: The New Insurance Economy – Challenges and Solutions
2. COVID-19 Impact Series: Property & Casualty Insurance Revisited
3. COVID-19 Impact Series: Growing Life & Annuity business in crisis times
4. COVID-19 Impact Series: Healthcare transformation using IT
5. COVID-19 Impact Series: Trying Times for Broking Sector

Stay tuned for a ‘Point of View’ on Insurers navigating the turbulent markets in COVID 19 economy.

Visit LTIMindtree’s Insurance page to find out more about our capabilities in this vertical.