SUSAN BURKE, LIBERTY MUTUAL REINSURANCE
The growing importance of relationship transparency
Open dialogue and complete information are crucial to protecting and advancing the relationship between cedant and reinsurer.
There is no doubt that, since 2020, the way we work and the data we have available have changed dramatically. During the COVID-19 pandemic, the world faced one of the largest social challenges it had seen in recent decades, and almost everything ground to a halt.
In insurance, casualty lines were particularly affected, and this caused a disruption in our data sources, changing the basis on which casualty reinsurance business is priced and underwritten.
With the abrupt slowdown of legal proceedings and regular claims payments in 2020, our historical data flow source took a hit; stability became a distant memory. Couple this uncharted territory with further challenges posed to the market in the form of loss creep and adverse loss trends in certain casualty lines, and we have the perfect storm to breed uncertainty. Uncertainty, in turn, can lead to strained relationships.
Instability breeds confusion
There has been a lot of uncertainty in the post-COVID-19 world, with changes to the way cases are dealt with and more potential abuse within our legal systems. Court closures during the COVID-19 pandemic meant that cases have been waiting to be tried for years and as a result our data isn’t as accurate and stable as it once was. We are struggling to find where the new normal begins.
While we are playing catchup, the pandemic has taught us how facing unknown quantities such as COVID-19 will clarify how trends evolve and where risks will come from next.
We have been navigating uncharted waters but, as a result, we have fortified our vessels—recent market shifts have changed the way cedants have been managing portfolios and interacting with reinsurers when sharing information.
“Recent market shifts have changed the way cedants have been managing portfolios.”
Susan Burke, LM Re
Two heads are better than one
We may be finally experiencing a slowdown in the number of cases left over from COVID-19 court shutdowns, but it is still unclear how many older claims are “out there” still and how the landscape will change.
Historic loss reporting and payment patterns are an excellent tool but inherently limited in their ability to foretell emerging loss trends. The best solution is clear, concise data to enable reinsurers to provide the most accurate pricing analysis possible.
To understand patterns and gain a holistic view of the market, it is essential that transparency between cedant and reinsurer is at the heart of interactions. If reinsurers are armed with as much information and knowledge as cedants, discussions and outputs will be a lot more productive for both parties.
Open discussions with cedants on details of portfolios and trends in the market undoubtedly support reinsurers’ ability to price coverage more accurately. For most reinsurers, conservative valuations are a go-to defence in the face of uncertainty.
They need to protect companies against a market where the data and risk-profiling aren’t as clear as they could be. While no-one has the answers right now, such conversations are vital for reinsurers to better understand the trends.
“It is not only in the casualty market that transparency provides more opportunity.”
A market open for opportunity
It is not only in the casualty market that transparency provides more opportunity for reinsurers and for cedants. Property lines have been pushing for updated valuations and information to ensure they are continuing to provide accurate and fair pricing assessments on portfolios. Other lines of business are looking to improve the data-driven decision-making process.
The importance of partnership goes both ways. Cedants should want a reinsurance partner that is experienced, knowledgeable and here not just to provide terms at this renewal, but to pay claims for years to come.
How parties handle the current market uncertainty can be telling as to their view of the cedant/reinsurer partnership. A practice of open and honest dialogue between cedants and reinsurers will ultimately benefit the wider market and end clients.
Susan Burke is VP, standard casualty treaty manager US at Liberty Mutual Reinsurance (LM Re). She can be contacted at: susan.burke@libertymutual.com
Main image: Shutterstock / Erickson Stock
