|
What's
New in Cybertalk?
by Jean Gora
March 2000
Note: CyberTalk is a column
that appears monthly in LOMA's Resource, the magazine for insurance and
financial services management. To see more contents of the magazine and to see
how to subscribe, click on RESOURCE.
Reinsurers Establish Internet
Exchanges
One of the big problems insurers face in doing
business with reinsurers is the volume of paper files that must be submitted
with each application. In late 1999, two reinsurers — CNA Life Re and Swiss Re
— introduced Internet-based services designed to improve the efficiency of the
submission process. Although both companies aim to link multiple direct insurers
to reinsurers, they take very different approaches to the problem. This month's
CyberTalk examines the solutions they propose.
CNA Life Re’s AgoraRe.comSM
CNA Life Re introduced AgoraRe.comSM,
The Reinsurance MarketplaceSM, an online submission and tracking
system for life insurance direct writers and their reinsurers. Thus, CNA Life Re
has opened this market to its competitors. The site is a vehicle for
distributing and placing facultative reinsurance online.
AgoraRe.com allows direct writers to post
applications and case-specific documents through an extranet Web site for
retrieval and examination by one or multiple reinsurers. Reinsurers can then
examine he cases and supporting documents and return responses through
AgoraRe.com. The direct writer can then review the responses and select the best
offer.
CNA Life Re estimates that distributing cases
through AgoraRe.com can be up to 80 percent cheaper than express mail delivery
of large paper files. Similarly, electronic delivery should cut the staff time
required for submission by 60 to 70 percent. Submitting the same 50-page case to
four reinsurers through AgoraRe.com takes about five minutes from beginning to
end.
The AgoraRe.com site is secure and not accessible
from the public Internet. Direct writers that use it cannot view cases submitted
by competitors. Reinsurers cannot know to which other companies risks have been
submitted. One presumes here that CNA Life Re cannot know what business its
competitors are attracting through the system.
The site allows direct writers to create
customized lists of reinsurers with whom they have treaties, and they can direct
business to reinsurers on this list.
AgoraRe.com is designed to facilitate case
tracking from submission through acceptance. It features continuous real-time
status updates and automatic notification of offers and acceptances.
Because the intent of the AgoraRe.com is to
facilitate the exchange of information, participants have to submit documents in
a format that can be readily read by other authorized market participants.
Although AgoraRe.com can accept any file format, it prefers TIFF (tagged image
file format) and PDF (portable document format) files.
CNA Life Re used four major direct writers as its
advisory system when it set up the system. In the spring of 1999, it began
talking to reinsurers, at least 10 of which expressed an interest in
participating in the system. The pilot project was due to end at the end of
1999, with the site opening to all insurers for business in the first quarter of
2000.
Swiss Re’s Elrix
Swiss Re has taken a somewhat different approach
to the problem of improving the efficiency of the process through which brokers,
direct insurers, and reinsurers can trade risks. It has introduced Elrix, the
Electronic Risk Exchange, which auctions standardized reinsurance products for
various types of property/casualty risks.
Only prospective buyers or their intermediaries
can participate in the auction. The amount of capacity and the duration of the
auction are defined for each product prior to the auction. After the prospective
buyer or its intermediary enters key risk portfolio data, the system immediately
responds by indicating a reserve price or offer. The prospective buyer can then
return an immediate bid if it likes the offer.
If the prospect does not like the initial offer,
he can alter the composition of the portfolio for which he is attempting to
obtain coverage and enter new risk profile data. The system ensures
comparability of the different offers relayed in response to the different risk
profile data entered.
During the auction, participants can track the
status of their bids through their desktop workstations. The auction procedure
allows them to follow the market in real time and to re-enter bids if they wish
to do so. It also allows them to compare different portfolios directly.
All functions are available from 6 a.m. to 11
p.m. central European time. Since November 1999, auctions have been available
for catastrophic risk products including earthquake and windstorm capacity for
Israel; windstorm capacity for Great Britain, France, Belgium, and the
Netherlands; and marine coverage for anywhere in Europe.
Users receive a user ID from Swiss Re as well as
a main password and a lit of single-use passwords good for only one log-in.
For the auction for windstorm coverage for
Belgium, for example, Elrix requests the total sum insured, the deductible, the
cover, the share, and the inception date. Swiss Re has developed a pricing tool
to calculate the minimum price of a portfolio immediately. The underlying
mathematical model allows pricing based on a limited set of parameters.
Two Different Models
Swiss Re developed the Elrix site in association
with Andersen Consulting. There is no indication on the Elrix site that it is
open to participation by other reinsurers. It appears to operate an auction for
SwissRe products rather than as an exchange serving all market participants. It
appears that the Elrix model, which generates prices automatically on the basis
of the mathematical model mentioned above, is likely to be adaptable to the
exchange format. However, in order for that to happen, multiple reinsurers would
have to agree on product standards.
AgoraRe.com does not automate the pricing
function. Rather, it offers an efficient way to move large files to multiple
parties. It does not tackle the issue of standardizing the reinsurance products
offered by reinsurer participants. Without such standardization, it does not
make a lot of sense to automate pricing.
It will be interesting to see whether efforts
such as these ultimately lead to greater product standardization within the
reinsurance industry.
| 
