Reinsurance remains a critical component of the insurance industry, involving financial transactions that total hundreds of billions of dollars each year.
According to a report from Deloitte, reinsurance serves as a key strategic tool for managing earnings volatility and capital adequacy. Despite its importance, Deloitte’s survey of industry executives found that investment in reinsurance technology, processes, and analytics has lagged over the past decade.
Deloitte’s findings show that 62% of executives use reinsurance primarily for risk transfer, while 54% cite capacity expansion and 38% point to reducing income variability as core objectives.
The survey also revealed that underwriters are increasingly negotiating individual contracts and applying complex risk profiles, with 92% of respondents reporting that their companies’ contracts have medium or high levels of complexity.
The reinsurance sector is facing additional challenges due to the rising frequency and severity of natural catastrophe events. This trend has made the modernization of reinsurance systems even more important for operational efficiency and risk management.
As the industry contends with more complex risks, there is a growing recognition of the need for systems that can handle increased data volumes and support more sophisticated decision-making processes.
Reinsurance administration has not kept pace with the growing sophistication of these contracts, Deloitte notes. Many insurers struggle to integrate data from multiple sources, products, and business lines.
Respondents gave their organizations low marks for the timeliness and informativeness of their data, and 69% identified data quality as a major pain point. High-quality data is essential for understanding profitability, determining optimal reinsurance deployment, and pricing contracts accurately, but access to such data remains a challenge for most companies.
According to Deloitte and industry observers, many re/insurers continue to rely on legacy systems built on COBOL or spreadsheets to manage reinsurance contracts. These antiquated platforms can result in errors, claims leakage, and slow deal implementation.
The complexity of modern reinsurance arrangements often surpasses the capabilities of these legacy systems, necessitating significant manual intervention and increasing the risk of operational inefficiencies.
Enhanced reporting, analytics, and dashboarding capabilities are among the top areas where executives see a need for improvement. According to Deloitte, 38% of survey participants cited analytics as a significant pain point. Siloed functions and outdated technology further hinder the advancement of analytics in reinsurance.
Deloitte’s analysis suggests that with the right implementation, improved analytics can help insurers negotiate more effectively with reinsurers and provide business insights that support margin preservation and improvement.
Artificial intelligence (AI) is beginning to play a larger role in reinsurance modernization. According to EY’s insurance outlook, 52% of insurance CEOs plan to invest significantly in AI this year, and 59% expect that any jobs impacted by AI will be offset by new roles.
Industry leaders see AI and related technologies as tools to enhance underwriting, claims management, and customer interactions, as well as to help insurers keep pace with evolving risks and operational demands.
Deloitte’s survey also found that most companies have only basic reinsurance technology solutions in place, with many relying on spreadsheets for administration. Half of the executives surveyed said their companies continue to use spreadsheets, which are labor intensive and susceptible to errors.
Eighty-five percent of respondents indicated their organizations plan to improve or enhance their technology in the next one to three years, and 46% said they expect to invest in predictive analytics.
Deloitte’s report highlights that automation in reinsurance administration could help companies reduce costs and improve process effectiveness. However, respondents rated themselves low on standardized and automated processes, with half reporting significant manual workarounds.
Moving toward automated systems, Deloitte notes, could allow professionals to spend less time on data gathering and reporting and more time on analysis and performance insights.
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