My Perspective as an Insurer Turned Reinsurer - Is Reinsurance a Product or a Transaction?
Over the last several weeks I’ve had the opportunity to attend industry conferences in Europe and the U.S. for the first time in my capacity as President and Chief Marketing Officer of Gen Re P&C. Given the upcoming January renewal, it was not surprising to hear so much reinsurance discussion centered on the abundance of capital, alternative capacity and the resulting competitive market.
What was surprising, however, was how much of this conversation related to the immediate process associated with the negotiation or transaction, rather than the true reinsurance product. It fascinated me to hear how many people are focused on the elements of the transaction, rather than the reinsurer’s expected response when a claim is presented.
Many companies expend a great deal of time articulating the objectives of the placement, compiling information and negotiating price and contract terms. But how much time do they spend evaluating the strength of the “actual” product being purchased? What is the likely response in the event they need to collect from a reinsurer at the time of a claim? It’s akin to a car buyer who spends his or her time focusing on the price and options, while neglecting to confirm that the car will actually start reliably or that the car’s manufacturer will be around in the future to stand behind the vehicle it produced.
When it comes to reinsurance, the reliability, commitment to the market, stability and reputation of the reinsurer must be critical factors in the purchase decision. The reinsurance buyer is likely to need that reinsurance “car” to start and be reliable years into the future. When that buyer needs service, he or she needs to know that reinsurer will be there to respond. Not just now, but 10 years or more into the future.
In my prior role as an insurance company president, I experienced firsthand the frustrations of trying to recover reinsurance long after the transaction took place. I learned the hard way that not all reinsurance and not all reinsurers are the same - something we often don’t give enough thought to during the transaction.
I found that reinsurers with similar financial ratings at the time of purchase responded very differently when they were asked to pay.
- Some pay slowly.
- Some offered to pay only a fraction of the billing without offering a good reason not to pay in full.
- Some sought excessive amounts of information that didn’t contribute to claim resolution.
- Some asked for the same information we had already provided to them multiple times.
- Some challenged the contract wording.
- Some challenged the expense obligation.
- Some couldn’t locate the contract.
- Some have been acquired by another reinsurer…and another…We were suddenly dealing with strangers to the transactions.
- Some rely on threatened arbitration or commutation as a standard response to a billing.
- Some don’t pay at all.
All too often our reinsurance recoverables did not amount to 100 cents on the dollar.
I learned how the product - which was not only purchased during a negotiation years ago by people no longer at our company but also purchased through an intermediary with whom we no longer had a relationship - actually performed when a claim was presented. Unfortunately, it did not perform as promised. As a result, we began to look at the transaction and product very differently.
Besides terms, conditions and financial strength, we looked at the reinsurer’s motivation to be in the industry and its duration in the industry. We sought to understand its claim settlement practices and reputation, and the commitment and expertise of both the management team and claims executives. Our goal was to better discern the differences between the products being offered, who was offering them and how we expected that reinsurance product to perform in the future. Only then could we decide which reinsurer offered the most attractive terms at the time the product was purchased. Invariably, we opted for the “car” that we trusted to start for the foreseeable future.
During these recent industry events, everyone had a point of view about the competitive reinsurance market, depending on their role in the industry. Those whose business benefits by the transaction were naturally the ones most excited to talk about the abundance of capital and the competitive market. But those who depend on the reinsurance product to perform when called upon know that it’s not the transaction alone that’s important, but the quality of the reinsurer’s promise – the ability AND willingness to respond at the time of loss. That’s what defines the product’s ultimate value.