The future of reinsurance: Technology and skills gap in focus

The future of reinsurance: Technology and skills gap in focus

The state of reinsurance pricing in 2023 is under scrutiny. With the landscape of risks evolving at an unprecedented pace, reinsurers are facing significant barriers to optimally underwriting risks. A staggering 70% of underwriters acknowledge that this rapidly changing environment presents the greatest challenge to their ability to underwrite risks effectively.

Hyperexponential, a developer of a pricing decision intelligence for insurers, recently delved into five stats that show the state of pricing within reinsurance. 

Despite the presence of a hard market which offers some level of protection, the pressing question remains: are reinsurers pricing optimally to ensure future profitability? Frequent natural disasters and the impact of inflation intensify the need for agility in pricing. Yet, 55% of reinsurers feel that technological shortcomings hinder their ability to adapt to these changes swiftly and accurately. Common tools like Excel and traditional pricing platforms lack the necessary agility, often due to cumbersome user interfaces and poor integration, leaving crucial data out of reach for actuaries.

Conversely, insurers employing Decision Intelligence software are gaining a competitive edge. By incorporating relevant external data through APIs at the point of pricing, they can efficiently compare benchmarks and make informed decisions on renewals in a fraction of the time. For actuaries, this means the capability to refine pricing tools, conduct portfolio-wide what-if analyses, and monitor live performance through user-friendly dashboards, ensuring readiness for market shifts.

The average underwriter is bogged down by routine tasks, spending approximately 3.13 hours each day on data re-entry. This inefficiency directly affects the profitability of the reinsurer by limiting the amount of profitable risks an underwriter can process. Traditional pricing solutions, which focus solely on deriving technical prices without considering broader factors, contribute to this time wastage.

However, companies like Aviva have successfully streamlined their workflows by integrating external tools with their policy administration systems, thereby significantly reducing administrative burdens.

The development and iteration of pricing models are also affected, with actuaries needing around 46 days to implement a simple parameter change, often due to inflexible infrastructure and dependence on IT departments for updates. Conduit Re, after implementing hx Renew, observed a marked improvement in this area.

Stuart Quinlan, Deputy Chief Executive & Chief Operations Officer, stated, “No data put into hx Renew is lost. With Excel, everything gets trapped in a spreadsheet and is unusable in the long run. In hx Renew, we can aggregate all of our pricing data, for example, by line of business, and use that to create our development factors. The ability to move a case easily from one year to the next to help with renewing the policy is valuable for the team.”

Furthermore, the peer review process is another area where days could be converted into hours. A typical pricing team takes 11 days to complete the peer review process for a submission. Reinsurers need to improve collaboration between actuaries and underwriters, with nearly half of professionals in both roles acknowledging the need for better teamwork. Utilizing tools that facilitate automated quote document creation and in-model peer review could enhance collaboration and reduce quote turnaround times by up to 50%.

Finally, there is a recognized skills and technology gap within the industry. 90% of actuaries and underwriters are concerned about not having the appropriate technological skills for the future. Additionally, 81% worry about the adequacy of their current pricing platforms.

This gap is believed to cause excessive time spent on administrative tasks, suboptimal pricing due to integration issues, and hindered decision-making capabilities. Despite the challenges, the tools and technologies for pricing transformation exist, and many reinsurers are ready to embrace change, understanding that effective pricing decisions are integral to outperforming the market in the long run.

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