Leverage data to provide better risk management services

Re/insurers should leverage their reserves of data to provide better risk management services to their clients, according to James Morris, managing director and head of UK insurance and captive banking at Barclays Corporate Banking.

“As owners of huge data pools, reinsurers have the opportunity to pivot their businesses more heavily towards being true risk management partners to their clients,” said Morris.

“Coupled with analytical capabilities, the data held by reinsurers opens up new commercial opportunities as well as the possibility of helping to reduce claims through more effective risk management.”

While prices have been rising across the re/insurance market as carriers look to improve their long-term financial health, re/insurers are also looking at more “fundamental changes” to shore up profitability and invest for the future, said Morris.

This includes improving treasury and financing functions, he said, amid increased recognition that more can be done to achieve optimum core treasury efficiency.

“As cost and performance pressure has mounted, insurers have increasingly been willing to invest in these areas in order to help them run the most efficient operations,” Morris added.

Many reinsurers have traditionally handled their operational banking and payments via spreadsheets and online banking platforms, Morris noted.

“These areas are now the focal point of efforts being made to improve operational efficiency. Direct connections to banks via host-to-host infrastructure or Swift, delivering high levels of straight-through processing, are increasingly the norm,” he said.

Exciting new propositions such as virtual accounts open up the possibility for even simpler banking arrangements, Morris added.

He noted that reinsurers have been keen investors in new technology in recent years, as they have sought ways to deliver reinsurance balance sheet to primary customers in a more cost-effective, digital manner. They have invested in technology to reduce costs and improve the end-to-end underwriting experience, he said.

Reinsurers are increasingly focused on their capital structures and optimising their balance sheets, Morris added, and are turning to the legacy market to facilitate this.

“Re/insurers will continue to rationalise their business models, whether that be through reinsurers bulking up and combining resources in areas requiring increased firepower, or by the divestiture of unprofitable or capital-intensive lines,” he predicted.

Challenges
Morris highlighted the challenges presented to re/insurers by the low interest rate environment, making it difficult to source yield without investing significantly in illiquid or lower-rated assets.

“The combined ratio is more important than ever, while pressure on core underwriting profitability is only exacerbated by the ongoing uncertainty around COVID-19,” Morris added.

“Reserve releases have also been more limited in recent years—a trend that looks likely to continue.”

He said collateral requirements remain a key focus for the reinsurance market, particularly for reinsurers outside the US.

“Banks continue to provide capital support to reinsurers in the form of regulatory letter of credit facilities,” he said.

“Demand remains as strong as ever, although the impact of the National Association of Insurance Commissioners’ Credit for Reinsurance Model Law has yet to be seen.”

Morris added: “While people remain at the heart of the relationship between a bank and its clients, technology is undoubtedly changing the ways reinsurers interact with their banks at an operational level.

“New connectivity channels open up routes to straight-through processing and new levels of efficiency.”

The COVID-19 pandemic has accelerated this trend, Morris said.

“At Barclays we have used technology to support the administration of banking relationships, so that clients can access our services as easily from home as they could from the office,” he concluded.