Title: REINSURANCE: The role, underwriting and markets for underwriters: - PowerPoint Presentation

1. Title: REINSURANCE: The role, underwriting and markets for underwriters: Theme: Insurance in the Digital Age-The time is nowJonah ChikuseContact details:Email: jchikuse@icloud.com / jchikuse@gmail.com Tel. +263 772 428 669 or +263 73 401 9845 IIZ Winter School 20151IIZ OCTOBER 2015 EXAMS 2

2. Areas to be coveredHistoryReinsurance MarketsThe Role of ReinsuranceFactors Determining Reinsurance NeedsSetting RetentionsTypes of ReinsuranceInsurance/Reinsurance in Digital Environment2

3. HISTORYReinsurance does not seem to have been practised in the eighteenth century but the direct sharing of large risks by several offices, or co-insurance, was common.London market history show that thee was growth in sharing risk/losses in 17/18 Century, when merchants realized that grouping together to share a loss made more sense than paying all the loss as an individualUnderwriters (acceptors of risks) began to meet in one place for best information (Lloyds)They then realized they couldn’t go out to get business – broker bornReinsurance, on a treaty or facultative basis, became common in the nineteenth century. 3

4. THE REINSURANCE MARKETINSURANCE COMPANIESREINSURANCE COMPANIESRETROCESSIONAIRES REINSURANCE BROKER4

5. From AM Best, these are the 20 largest reinsurers in terms of gross premiums written in 2011 (in millions).511. Transatlantic Holdings Inc. —4,13312. Korean Reinsurance Company —4,11413. China Reinsurance (Group) Corporation —3,79614. London Reinsurance Group Inc. —3,26615. MAPFRE RE, Compania de Reaseguros, S.A. —3,14316. General Insurance Corporation of India —2,57317. Assicurazioni Generali SpA —2,46318. AEGON N.V. —2,39119. QBE Insurance Group Limited —2,28020. XL Group plc—2,2551. Munich Reinsurance Company—$31,2802. Swiss Reinsurance Company Limited—24,7563. Hannover Rueckversicherung AG—15,1474. Berkshire Hathaway Inc. —14,3745. Lloyd’s—12,9776. SCOR S.E. — 8,8727. Reinsurance Group of America Inc. — 7,2018. Allianz S.E. — 5,7369. PartnerRe Ltd.— 4,88110. Everest Re Group Ltd. —4,201

6. In Zimbabwe there are 8 Reinsurers and 5 Reinsurance BrokersThis is the market for Zimbabwean brokers and insurers (as well as amongst themselves)Can access international markets after due process and signed Negative Market Slip6

7. 7The Role of Reinsurance

8. The RoleReinsurance can help insurers create value byLowering the weighted average cost of capital for insurance companiesReducing earnings volatilitySupporting new or expanded products to help drive new revenue and earningsProviding sustainable competitive advantage through structure and underwriting performance improvement8

9. The RoleReinsurance positively impact economiesHave gained recognition through helping insurers, governments and society in general after major disasters (man made or natural) eg NZ Quakes +$12bn, Japann quakes +30bn, Bermuda Market paid 27% I,e, $15.4bn of Katrina (total $57bn), covers 40% of Carlifornia Earthquake Authority (San Andreas Fault ???)Investment in various sectors of the economy, including real estateReducing earnings volatilitySupporting new or expanded products to help drive new revenue and earningsProviding sustainable competitive advantage through structure and underwriting performance improvementBecause of their ability to identify, analyse and model risks reinsurers are key drivers in adoption of better risk management.9

10. The RoleReinsurance positively impact economiesBy helping mitigate losses that could result from risks such as major new construction or breakthrough technologies, reinsurers are important enablers of innovation.10

11. TRADITIONAL RISKSProperty(fire and natural catastrophes) , marine, engineering, casualty (eg product liability and employer’s liability)Urbanization of populations and wealthconcentration lead to a greater exposureto natural catastropheGeopolitical risks (including terrorism)remain high as the world has entered into amultipolar distribution of political power)Heightened risk of pandemics due toGlobalization11NEW/EMERGING RISKSCyber risk, with increasing risk of“cybergeddon” in the online world, includingreputational risksSolar storms, with the potential to disruptseveral human activities (satellites, aviation,power grids, etc.) Renewable energies growth, with$2 trillion of investment expected betweennow and 2030Global supply chains lead to complexityand unpredictable vulnerabilitiesLong-Term Care due to ageing populations (Africa? Zimbabwe?)Nanotechnology, with potential dangers tosociety from bio-engineering and artificialIntelligence (conspiracy theories on ebola??) ETC ETC ETC ETC…Reinsurers constantly scanning the horizon for emerging and future risks

12. How Does it work?? Reinsurer takes part of the risk that an insurers has underwritten!! This is done through different types of reinsurance contracts Reinsurers either cover entire portfolio written by insurer or it can be a single risk, may involve sharing of all premiums and losses or may cover losses exceddeing certain threshold12

13. Factors determining reinsurance needs13

14. Factors Determining Reinsurance Needs 14Kinds of Insurance WrittenMore volatile lines & exposure to high severity claims increase need for reinsurance. Commercial lines with small number of risks with large exposures (aviation, utilities, energy) need more reinsurance than personal lines with homogeneous exposures (home, motor).Exposure toCatastrophic LossVulnerability to concentrated, interdependent losses requires reinsurance.Volume of Insurance WrittenHigher volume can require reinsurance to keep leverage acceptable. Reinsurance provide capital relief and improve balance sheet strength.

15. 15Factors Determining Reinsurance Needs Nature of Insurance companyMulti-line insurers needs less reinsurance than mono-lines and specialised players. Life insurers with greater proportion of contracts containing a mortality and disability risk element cede more than those with high levels of savings premium.Available Financial ResourcesLess capital (small local players need more reinsurance than large international players), higher cost of capital & other forms of loss financing increase need. Regulatory and rating agency considerations.Stability/LiquidityInvestmentsLess stable and/or liquid investments increase need for reinsurance.Growth/Exit PlansGrowth can create surplus strain that can be offset by reinsurance. Important for life insurers expanding into new products and new geographic regions.Insurers exiting markets use run-off reinsurance

16. Factors determining the level of reinsurance ceded 16

17. 17

18. 18

19. 19Setting retentions

20. Setting Retentions20

21. Retention per risk21

22. Quantifying the absolute retention level22

23. RetentionsRi = f(N,p(x),C(z),A,r,,Pi,W,I, Mi,T)Where: Ri = retention in time period t,N = size of the portfolio = S(xn)S (xn) = the number n of exposure unit of size x included in the portfolioP(x) = probability of an exposure unit of size x incurring a loss in time t.C(z) = the size of loss z if a loss occurA = ratio of capital and reserves to Nr = rate of return payable on A = premium loadingPr = selected probability of retained losses exceeding a chosen targetI = The company’s investment policyMi = Management attitudeT= Type of reinsurance23

24. 24

25. Rules of thumb – per risk25

26. Rules for setting the proportional retention (net capacity)26

27. Rules for setting the proportional retention (net capacity)27

28. Rules for setting the proportional retention (net capacity)28

29. Rules for setting net retention 29

30. Rules for setting net retention 30

31. Rules for setting net retention 31

32. Rules for setting net retention 32

33. 33Types of reinsurance

34. FORMS OF REINSURANCETREATYFACULTATIVEPROPORTIONAL Quota Share SurplusNON PROPORTIONAL Single Risk XL Catastrophe XL Aggregate XL/Stop LossPROPORTIONALQuota Share NON PROPORTIONAL Single Risk & Cat XL 34

35. PROPORTIONAL TREATIESThe main forms under proportional treaties are Quota share, Surplus and Fac Obligatory treaties.Statements of accounts are submitted and settlements are made at agreed intervals and premiums and losses are credited to the treaty 35

36. QUOTA SHARE TREATY Form in which a defined percentage of all risk assumed by the primary insurer (cedant) in a specific line of busines The ceding company is bound to cede and Reinsurer is bound to accept a fixed proportion of every risk written by the ceding company e.g. 30%:70% provided they are within the treaty terms. Liability, losses and premium shared in the same defined percentages.36

37. QUOTA SHARE TREATY37

38. Quota share reinsurance 38

39. WHEN ARE QUOTA SHARE TREATIES USED?New ceding company starting business or companies entering into a new class of business or entering a new area and has no statistics or experience.A method of protecting the new company’s paid up capital which will be exposed from day one of its operations as it accepts business not necessarily commensurate to the cash flow position. 39

40. WHEN ARE QUOTA SHARE TREATIES USED?New line of business being developed and risk pattern is uncertain.Reciprocity. This enables each party to participate into a wider portfolio at minimal cost.When the loss ratio on surplus treaty has become poor and cannot be corrected immediately.Where sums insured are moderate but subject to abrupt variations in loss ratios from year to year e.g. Hail classes.40

41. SURPLUS TREATYCedant obliged to cede all amounts in excess of its retention up to a maximum limit which is a multiple of the cedant retentionPremium ceded in the same proportionRetention can be graded (consent of reinsurer(s))Premiums, claims and liability shared in the same proportionSurplus treaty is an agreement whereby the ceding company is bound to cede and the Reinsurer is bound to accept the surplus liability over the ceding company’s retention.All business falling within the scope of the treaty must be ceded.41

42. Tables of limitsCriteria used for the grading of retentions:Type of risk;Quality of construction;Fire protectionPremium rateIntention when using table of limitsTo reduce the portion retained in undesirable risks.42

43. Tables of Maximum RetentionsRISK TYPEAREAABCAMOUNTS in ‘000GRADE 1: OFFICE BLOCK1008060GRADE 2: Churches, breweries806550GRADE 3: Light Engineering, Restaurants605035Grade 4: Heavy Engineering Departmental Stores403020Grade 5 : Flour Mills, Grain Silos2015REFER43Will only work if reinsurers support the proposalOffered SI risk of $1m in Category A1, what is the retention? Reinsurance?Offered SI risk of $250k in Category C3, what is the retention? Reinsurance?Offered SI risk of $5k in Category C5, what is the retention? Reinsurance?

44. SURPLUS TREATYCessions/liability attaches simultaneously and automatically as soon as the cedant’s retention is exceeded.Unlike the Quota share, on surplus treaties, the Reinsurer does not participate in all risks written by the direct underwriter, but only in those risks that exceed the cedant’s retention.The amount ceded to the reinsurers is surplus to the amount retained by cedant.Surplus treaty allows insurance company to keep for own account 100% of risk whose SI falls within its retention. premiums are ceded in the same proportions as the sum insured on the risk;44

45. SURPLUS TREATYThe capacity of surplus treaty is always a multiple of the ceding company’s gross retention (amount retained by ceding company and its quota share reinsurers).Surplus treaty may be arranged in multiples i.e. 1st Surplus, 2nd Surplus 3rd Surplus etc. as required by the companyIn certain markets you can get 20 line surplus treaty or more45

46. Example 1The cedent’s original liability from his share in a given risk amounts to 3 million; (Gross retention $300,000 and has a 9line Surplus Treaty) the premium is 1.50‰ (of the sum insured); and the loss is 1.5 million. The risk is shared by the cedent and the reinsurer as follows:46

47. Example 247

48. Example 348

49. Surplus reinsurance49

50. Surplus reinsurancePossible to protect this portion through a Q/S50

51. Reinsurance CommissionCommission is paid by the reinsurer to the Cedant on premiums ceded.In principle Reinsurance commission should be sufficient to cover the original commission, plus the cedant’s Management expenses, but the margin is also tied to the performance of the portfolio (and the negotiation skills of the broker involved). Commission rate is agreed upon by the parties at the time of negotiating terms of the treaty.Main Types of Commission are:Flat CommissionProfit Commission (over and above the Flat Commission)Sliding Scale CommissionPROPORTIONAL KEY FEATURES51

52. Sliding Scale CommissionThis is a performance based Commission which allows for downward adjustment of Commission on posting a high loss ratio; and also provides for a higher Commission for good results.A Provisional Commission, which is normally the mid point between the Commission scale, is payable before the year end adjustment of the CommissionPROPORTIONAL KEY FEATURES52

53. Profit CommissionA percentage of the earned profits which the reinsurer agrees to pay in addition to the Flat Commission that would already have been awarded. Formula takes into account the Reinsurers’ Management expenses margin (normally 7,5%) and the treaty’s possible deficits from prior years.PROPORTIONAL KEY FEATURES53

54. TREATY REINSURANCETREATY BALANCE The relationship between the treaty capacity (liability) to premium income. Important because it indicates to a Reinsurer the profit potential of the treaty, e.g. if treaty limit is 60,000,000 and the premium income is 6,000,000 then in the case of a total loss, it will take the Reinsurer ten years (payback period) to recoup, The suggested maximum ratio of liability to premium income should be as follows:-Quota Share : (5:1) or 5 year pay backFirst surplus: (10:1) or 10 year paybackSecond surplus: (15:1) or 15 year payback)54

55. NON PROPORTIONAL TREATIES Reinsurer assumes the part of the primary insurers losses that a certain amount, against payment of a specially calculated premium. Priority, attachment point or deductible Risks are not ceded to an XL, only losses Simple to administer Pricing of XL treaty/no direct relationship with original rating Reinsurance premiums not proportional to coverage limits55

56. Why is it called “Excess of Loss”?56

57. RATIONALE FOR LAYERINGFor rating purposes. There is a higher likelihood of smaller losses on a normal portfolio than big losses. Layering makes it possible to charge a higher rate on the more exposed lower layers than upper layers.Reinsurers have different risk appetites. Some are more comfortable with upper layers where the likelihood of loss is low but premium is also low. Eg on Retro market.Preference of non prop treaties to prop treatiesOthers are more comfortable with lower layers where the risk is high but premium is more.57

58. NON PROP TREATY CONSIDERARTIONSThis is a form of reinsurance where recoveries are available when a given loss exceeds the reinsured’s retention defined in the agreement. The agreement is entered into between a reinsured and Reinsurer(s) whereby the Reinsurer agrees to pay the reinsured all losses which exceed the limit set and arises out of the business protected.Deductible is the amount retained by the reinsured58

59. NON PROP TREATY CONSIDERARTIONSThe programme is usually arranged in layers. Example of non proportional arrangement: Cover xs DeductibleLayer 1: 300,000 xs 200,000Layer 2: 1,000,000 xs 500,000Layer 3: 1,500,000 xs 1,500,000The Reinsurer only pays the reinsured when the original loss exceeds the deductible.Losses below the deductible are borne by the Reinsured in full.59

60. NON PROP TREATY CONSIDERARTIONSThere is no proportionate sharing of Risk, Premiums and losses as is the case under proportional reinsurance.Since there are no cession of risk, the insurer who is protected by the non proportional treaties is called the reinsured and not the ceding company.The size of cessions is not determined on case by case as in proportional arrangements.The reinsurance premium is predetermined at inception, but adjusted at end of year.Accounting operations are minimal and administration costs are much less.60

61. NON PROP TREATY CONSIDERARTIONSPremium is usually a percentage of the protected premium volume for the given year (GNPI) Reinsurer is not concerned about the original rates charged by the reinsured.The reinsurer’s rate is charged on the premium income of the class of business covered. When applied to the premium income of the portfolio protected the rate will then give the premiums charged for the cover.The cost of reinsurance is not fixed every year , depending on the development of premium income, as well as the existing conditions at the time of negotiations. 61

62. Premiums in Non ProportionalGNPI = Written Premium less Return Premium, Cancellations and premium on reinsurances which reduce the exposure of the XL Reinsurers. XL Premium= GNPI x Rate of Adjustment.M & D Premium= XL Premium x 80% or 90% as may be negotiated & agreed.Adjustment Premium= Excess of XL Premium over the M & D Premium, but not vice versa.Reinstatement Premium= Proportionate premium payable to the reinsurers, in case of a loss recovery, as per predetermined terms, which will reinstate the cover limit of the XL treaty.62

63. XL PremiumSince every loss is not shared in proportion, Reinsure is not entitled for proportionate premium. There can be years, when not a single loss is recovered from Reinsurers and Reinsured retains all losses, as they are within the deductible level. The XL premium is therefore worked out on the basis of certain rating methods such as Burning Cost, Exposure, ROL methods etc. Reinsurers use rating models for various classes and types of XL treaties.63

64. A rate of adjustment is arrived at by using vaious methods of rating and this rate is applied to the GNPI of the whole portfolio.The premium thus arrived is called the XL Premium. For example : GNPI is 20,000,000Rate of adjustment is 2%XL Premium is 400,000Now the GNPI it self is an estimation by the Reinsured. Depending on the market conditions and business strategies of the Reinsured, the (estimated) GNPI :may be reached, say is accounted at 20,000,000may not be reached, may reach to 18,000,000or may exceed the estimate and reach to 23,000,000How is Premium fixed for Non Prop?64

65. NON PROP TREATY CONSIDERARTIONSThe deposit premium is adjusted at the end of the year subject to a minimum premium.In calculating the premium, if the Reinsurer uses low estimates(GNPI) then he will not collect premiums commensurate to the risk he is running. He therefore specifies the minimum premiums he should get from the cover.Reinstatement premiums: Whenever the Reinsurer pays a claim, the amount of cover is reduced by the amount settled.When several claims are settled, the whole cover may be used up. Reinstatement provision allows the cover to be reinstated subject to payment of additional premiums.65

66. PER RISK XLThe reinsurer pays any loss on an individual risk in excess of a predetermined amount.Offers little protection against accumulation of individual losses occurring during one year.The Reinsurer is liable to pay many claims and therefore attract high rates. Deposit premiums to be paid in advance even before the insurer has received its premiums. 66

67. Risk Excess of Loss CoverGenerally the claims profile of an insurer shows most of the losses are small in size & few claims are large. Insurer has capacity to pay small claims but needs help to pay large claims. Hence he chooses to pay all losses up to a level he is comfortable with and beyond that threshold asks the reinsurer to pay. 67

68. PER EVENT XLArranged on a per occurrence basisCAT xl desirable whenever the portfolio is exposed to a catastrophe which can involve a substantial number at the same time-natural disastors(two risk warranty).Protects the reinsured against claims from a series of individual risks, affecting different classes out of one non catastrophic event.The classes involved in this single event are Motor, GPA/PA, Life Covers, Public Liability & Fire.68

69. PER EVENT XLOnly one retention will be maintained by the cedant, and the reinsurers will meet all the claims arising (aggregated) from the incident.The insurer receives a bigger contribution to the loss from the reinsurers with a per event cover than with a per risk cover.Hours clause69

70. Catastrophe Excess of LossExcess of loss cover protection for accumulation of loss out of a single event. Proportional Reinsurance and Risk XL control the vertical exposure on individual risks. However the Cat XL protects an insurer from horizontal exposure, when a single loss affects a number of policies and risks. Natural events such as a flood, cyclone, earth-quake, volcanic eruption, or, or man made event such as riots / large fires in conflagration areas can cause wide-spread loss. 70

71. STOP LOSS/AGGREGATE EXCESS OF LOSSProvides a ceding company with protection against an acceptable degree of variance; random in aggregate loss experience of a reinsurer of a reinsured portfolio in any one year.Provides protection against accumulation of losses above a financially tolerable level expresses as a monetary limit, or a target loss ratio.E.g. 120% of incurred losses xs 65% of incurred losses on GNPI subject to a maximum of USD 950,000.Two main features of stop loss covers:Must guarantee a profit to the reinsured Stop loss does not take on the role of the cat xl covers71

72. ADVANTAGES OF NON PROPORTIONALReinsured obtains protections only against large losses( no financial strain)Reinsured retains for net account higher prop of gross income because a small part of premium income is paid to the Reinsurer. This allows greater premium retention.Administrative costs are lower and it is easy to adminsterFaster reaction of Reinsurer in the event of a claim72

73. DISADVANTAGESDifficult to calculate premium that fairly relates to risk transferredCeding company obtains severity protection , no protection against frequency specially within deductibleReinstatement premium usually paid in the event of losses can be a major expense if claims increaseCover limited to specific number of claimsNo continuity compared to proportional treaties and no continuity in pricing.No proportional sharing of direct Insurer’s costs such as commissions etcPricing of xl programme does not regard original rates which can affect loss ratio of net retained account.73

74. NON PROPORTIONAL : TREATY CLAUSESULTIMATE NET LOSS CLAUSE Defines a loss recoverable under the treaty. Intention is that the reinsurer shall be liable only when the amount, including legal costs and other loss settlement expenses actually paid by the insurer less all recoveries from underlying reinsurance or other sources exceed the deductible.Net retained lines:Amplifies the ultimate net loss clause and stresses that the reinsurance applies only to portion of any insurance which the reinsured retains net for its own account. This prevents the reinsured from recovering from more than one Reinsurer.74

75. Ultimate Net Loss Clause (UNL)Defines a loss as a sum that the Ceding Company sustains following a loss, after necessary adjustments are made.Intention is that the Reinsurer is liable only when the amount including legal cost and other loss settlement expenses, actually paid by the Ceding Company less all recoveries from underlying reinsurances or other sources exceeds the loss retention or the underlying.75

76. Claims reporting ClauseThe Ceding Co. is obliged to notify the loss to the reinsurer ASAP with the date & basic details of loss. Reinsurer may request for additional details and then set up required reserves.Any loss that may be 75% or more than the loss retention and is likely to increase further needs to be advised to the Reinsurer.76

77. NON PROPORTIONAL : TREATY CLAUSES CLAIMS CO-OPERATION CLAUSE Defines the insurer’s obligations regarding liaison with the reinsurer over conduct and negotiation of losses, thus allowing the reinsurer to be closely involved in any such negotiations. HOURS CLAUSE Serves to enable the treaty to cover all damages arising out of the same insured event within a specified number of hours. TWO RISK WARRANTY More than one risk has to be damaged by the insured peril before catastrophe treaty operate77

78. TREATY CONTRACTS – Information RequirementsQuota Share TreatiesCedant’s desired retention level in monetary and percentage terms Class of business for which the Quota Share arrangement is required Desired treaty limitEstimated/Budgeted Premium Income to be generated on this programmeRisk Profiles per class of business Indicate the ten largest risks Loss Profiles per class of business Indicate largest ten losses that affected the prior year Three years’ Audited Financial Statements – i.e. balance sheet, profit & loss account and cash-flow statement A brief statement of the underwriting / management strategy for the oncoming underwriting year Copies of the cover notes for the expiring treaty programmes  Any other information deemed pertinent in the structuring and pricing of the treaty programmes78

79. Surplus TreatiesCedant’s desired retention level in monetary terms Class of business and maximum capacity required Number of lines required Estimated/Budgeted Premium Income to be generated on this programme Risk Profiles per class of business Ten largest risks Loss Profiles per class of businesslargest ten losses that affected prior yearThree years’ Audited Financial Statements – i.e. balance sheet, profit & loss account and cash-flow statement A brief statement of the underwriting / management strategy for the oncoming underwriting year Copies of the cover notes for the expiring treaty programmes  Any other information deemed pertinent in the structuring and pricing of the treaty programmes79

80. Excess of Loss /Non-Proportional TreatiesReinsured’s desired/proposed deductible levels Previous Excess of Loss treaty utilization statistics – indicate losses above 50% of deductible  List all the classes to recover from the Excess of Loss Treaty and their Underwriting LimitsEstimated Gross Net Premium Income (EGNPI) to be generated on this programme Risk Profiles per class of business Indicate ten largest risks Loss Profiles per class of business Indicate the largest ten losses that affected in the prior yearThree years’ Financial Statements – i.e. balance sheet and profit & loss accountA brief statement of the underwriting / management strategy for the oncoming underwriting year80

81. Digital Environment!EY definition of digital: an enabler, as well as a distribution channel This definition goes beyond online distribution channels to a wide range of digital technologies: mobile (smartphones, tablets and apps); social media; cloud computing; analytics to mine business data and turn it into actionable insights; and digital platforms to interact and share information among insurer, agent and consumer. These technologies can be applied across the entire insurance value chain, from engaging and interacting with customers and distributors to sales and marketing, service fulfillment (underwriting and payment) and reinvestment.81

82. Digital is a new market force that is driving a massive change in consumer expectations. It will require a different set of Skills culture measurement. Industries such as telecommunications, consumer products, and media and entertainment have already harnessed digital to attract and retain new customers. The time is now for insurers to evolve and respond: they cannot afford to be on the sidelines of the shift to digital.Digital Environment!82

83. Survey of insurers – results (EY and PwC separate reports)Insurers acknowledge their current low levels of digital maturity and the need to take action. 80% view themselves as followers and not digital leaders - are “still learning to use digital capabilities for a competitive advantage.”Insurers aspire to future digital leadership; however, attaining their goals will require significant — and rapid — improvement. Insurers admit that they have not made transformational progress to realize their ambitious digital objectives.Insurers are holding themselves back -Internal factors — legacy technology, slow pace of delivery and culture constraints are hindering progress . 83

84. Respondents consistently cite intermediary and agent channel strength or resistance as one of the top three inhibitors in implementing their digital strategy. haring the benefits of investment in digital and communicating a clear mutual value proposition to deliver a better customer experience will help to minimize channel conflict.Analytics are critical to digital success - technology changing rapidly, insurers need new skills to exploit the digital challenge. Analytics capabilities (segmentation, customer data and predictive modeling) emerged as the most in-demand skill set in both sectors (and most strongly in non-life), followed closely by technology and marketing capabilities. Insurers need to embrace the mobile and social media wave - current focus on mobile products and services is limited. But with mobile and tablet use growing exponentially, neglecting mobile is turning one’s back on the future. 84Survey of insurers – results (EY and PwC separate reports)

85. What does the customer want?Global non-life insurers are able to meet demands like customization of cover, simplicity, provision of quotes on social media, ability to easily compare prices etc, and this scenario is a bit different from life companies (maybe due to legislation)Insurers’ focus is on risk, ratings and products, this may mean that their understanding of their customers lags behind the advanced techniques being developed by internet and telecommunications’ businesses. Comparisons with other sectors highlight a customer experience that is undermined by limited integration between channels and the lengthy form filling needed for claims, policy adjustments. These shortcomings are opening the door to more customer-centric competitors, including the data-rich and tech-enabled entrants who see non-life insurance as a vulnerable sector that is ripe for targeting.REINSURERS MAY NEED TO LOOK AGAIN AT THEIR WAY OF CONDUCTING BUSINESS AND SUPPORT INSURERS IN THIS INEVITABLE CHANGE85

86. Challenges faced by insurers/reinsurers in coming up with digital strategy Lack of methodology framework Developing a clear technology strategy Lack of skills/ difficult to find expertise Building solutions with flexibility Systems issues in implementation Lack of resources (time and budget) No business case for investment Internal company structure or culture constraints Integrating digital with other distribution channels Designing new digital offerings effectively for customers Creating a culture of rapid innovation and development Gaining internal management buy-in86

87. Site inspections and field measurement Extent of damage assessment (Google Earth Pro video)87

88. Developments elsewhere!!88

89. QatarlystQatarlyst established in 2008 (owned by QIS LLC), established to underpin Qatar’s commitment to become a leading regional insurance, reinsurance and captive insurance hub. Qatarlyst is a secure web-based electronic platform designed for the negotiation and placement of insurance, facultative and treaty reinsurance and Takaful business - address the needs of brokers, insurers, reinsurers, Takaful and Re-Takaful companies through the intelligent use of sophisticated yet accessible technology. Qatarlyst is creating a community of insurers, brokers and reinsurers across the region (Europe and Asia), offering real-time connectivity. QIS LLC also owns Qatarlyst RI3K, a London-based subsidiary offering a web-based electronic placement platform primarily for the international London and Lloyds market. The RI3K platform allows all types and classes of large commercial insurance and facultative and treaty reinsurance to be transacted over the Internet. The concept for both the Qatarlyst and Qatarlyst Ri3K platforms is very straightforward; i.e. no software is needed, users simply log on and trade.89

90. In 2012, Aon Risk Solutions, the global risk management business of Aon plc (NYSE: AON), committed to support the London Market Group’s modernisation agenda by implementing the Qatarlyst platform to automate the transactional insurance placement process with the London markets. Aon has employed the use of Qatarlyst across all lines of business in London, partnering with more than 65 markets in an effort to improve efficiency for clients. Aon had highest volume broker electronically agreed insurance contracts, binding more than 6,400 risks and 7,500 endorsements across all lines thus up to August 2012Qatarlyst delivers auditable communications and document distribution between broker, insurers and Lloyd's underwriter/reinsurersThe system is used in addition to the traditional face-to face negotiations conducted on behalf of clients, and plays an important part in communication and document tracking following initial broker and underwriter contact.90

91. RI3K (Reinsurance and Insurance for the 3rd Millennium)paperless trading service for the insurance and reinsurance industry. RI3K allows brokers to transact large commercial insurance, facultative and treaty reinsurance for underwriters to write and accept shares of these risks.The interface to the system from a broker’s in-house document production tool can be set to allow the automatic download of quotes and firm order policies. This download would use the placing slip, together with additional risk information, as the legally binding basis of cover (ref Ri3k website)RI3k was purchased by Qatarlyst9191

92. Ebix ExchangeEbixExchange is the world’s leading electronic trading service for the global, large commercial insurance and reinsurance industry, helping reduce paperwork, repetitive data entry, processing times and costs whilst also providing security, contract certainty, audit trail and regulatory compliance.What does EbixExchange do?EbixExchange provides Brokers, Cedants and Reinsurers with a comprehensive portfolio of online functionality, processes and workflows to support the full (re)insurance lifecycle from quotation, binding and endorsement through claims, accounting and settlement.92

93. London e-endorsement Pilot 2011Improved use of skills: 25 people-hours needed by high volume company to agree and process endorsements, with e-endorsement there is a saving of 20% of the time. To efficiently achieve this saving modifying traditional staffing to suit e-endorsement levels and dedicated staffReduced error rate: especially for those fully integrated on the ExchangeTurn around time: range between 3 seconds and 20minutes service (UNDERWRITER MUST BE EMPOWERED!!)Improved Customer service: i.e. Gains in turnaround times from initial notification of material change, to confirmation of agreement translated in many cases into improvements in customerTracking of endorsements in real time, thus service times monitoredImproved credit control, capital mgt and Mgt Info: all these processes link to financial systems93

94. Questions to ponderIs Africa or Zimbabwe or RSA or Mozambique or Botswana ready to go live on the digital platform?What would be regulatory issues? Is the current crop of company leadership ready for this change?Does the client (broker and cedant) want this service?By not going digital are we not whetting the appetite of certain other customer-centric competitors? (REMEMBER THE FINDING BY EY “... shortcomings are opening the door to more customer-centric competitors, including the data-rich and tech-enabled entrants who see non-life insurance as a vulnerable sector that is ripe for targeting...”What are the constraints?94

95. INSURANCE IN THE DIGITAL AGE - THE TIME IS NOW95

96. References96Dr S Mutenga – Reinsurance NotesThe essential guide to reinsurance – SwissReUnderstanding Reinsurance – SwissRe2014 Reinsurance Outlook – EY ReportThe Breadth and Scope of Reinsurance 2014 – Federal Insurance Office (USA Department of Treasury)Reinsurance Market Outlook 2015 – Aon BenfieldThe Reinsurance Agenda Magazine

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