Reinsurance “claims recoverability on a month-to-month basis represents $400 million in cash flow every month, every year” for AIG, said Chris Milton, vice president-reinsurance officer, American international Group, during a speech at the International Insurance Societys 39th annual seminar in July.

“Thats $4.8 billion in cash that has to come back into AIG every year,” he said.

To facilitate the recovery of reinsurance that is due AIG, the company developed information technology systems that permit it to share information “on pretty much a seamless basis with our major reinsurance markets,” said Mr. Milton.

IT has also allowed better claims management, he affirmed, noting that his department, which buys the companys reinsurance, has at any point in time 40 years of reinsurance recoverables from various reinsurance agreements around the world, through various reinsurers. Therefore, when a claim comes through, he said he needs ready access to contract wordings and types of reinsurance certificates that may have been provided.

As a result, AIG over the last 10 years has digitized 40 years of reinsurance contract data, so the company can access any document within the reinsurance area in real time, he said.

Discussing the advantages of this effort, Mr. Milton said there have been a few instances when a reinsurer has said, “Prove that we were on this risk.” After AIG e-mailed the reinsurers copies of the document that may have been executed some 40 years ago, the claims were paid within a reasonable period of time, he reported.

As a result of this effort to digitize data, the whole payment cycle has improved, he said. “What we find is that our business partners are much more receptive to doing some things that they wouldnt otherwise do” because it improves their overall internal efficiencies with regards to data collection, he said.

“This is not an easy road to go down, but in a strategic sense, its probably the only road that you can go down if you have significant volumes of business where you have an interchange with reinsurers over an extended period of time,” he said.

The digitization of data has also helped AIG track a reinsurers claims payment record, he said.

“We started mining some data internally on a specific reinsurer who will remain nameless,” he said. It was ascertained that the reinsurer very quickly attended to claims over $1 million, but for any claim falling in the $50,000 to $1 million range, the reinsurer would fire off a lot of questions.

Also, the reinsurer took, on average, four years to pay any claim below $50,000, he said, noting they didnt ask any questions because they didnt think AIG was watching.

This information was gathered and presented to the reinsurer, which paid all the outstanding claims within three months, he said.

Mr. Milton also said that AIGs move to digitize data and share information with reinsurers has provided a big boon to ensuring credit quality of AIGs reinsurance partners. By tracking such data, AIG now can have “very meaningful” discussions with its reinsurance partners and has a better view of its credit risk through the reinsurance partnership, the reinsurers amounts of risk, and how much counterparty risk exposure exists at any particular point in time, he said.

“That could never have been done 10 years ago. It was too difficult and has only now become possible through advancements in IT, he affirmed.

While the company is admittedly still equally balanced between paper and electronic exchange, moves are afoot to further develop electronic exchanges with reinsurance partners, he added.

At AIG there are major initiatives underway to share information from the front end of the business, via the brokers and risk managers, all the way through to the back end of the business and the companys reinsurance partners, he said.

A great example of that is we are working with a group primarily with a view to analyzing catastrophe management in order to assist risk managers, insurers, reinsurers and retrocessionaires to understand their risks, Mr. Milton said.

The industry needs to ensure that information quality is the best it can get and that information is as transparent as possible in order to allow people to run information through a variety of systems, platforms and models and assist them in making intelligent decisions about the risks theyre placing and assuming, he indicated.

Further, he added, as more and more data is shared among business partners in the industry, there will be more jobs done on a virtual basis.

Reinsurers in the United States have long practiced systemic audits of their ceding company clients, which take place every six months or every quarter in some instances, depending upon what type of businesses theyre doing, Mr. Milton explained.

“What weve found is that by sharing information electronically, a lot of those audits can now take place in a virtual environment as opposed to a reinsurer actually having to send staff out to look at that information” on site, he added.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 25, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.