Bad data tax: Unreliable data can add 10% to reinsurance costs
Cedents with bad data typically aren’t offered tailored reinsurance portfolios, which often have more favorable terms.
Reinsurance costs include a “data distrust tax” that is tacked on due to “ambiguous and inconsistent data” of cedents, according to a report from Supercede Technology Ltd., which noted this tax often results in a 10% increase in reinsurance rates.
“When it comes to data, our industry is ‘quagmired’ in a tragedy of the commons,” Ben Rose, Supercede president, wrote in the report. “So long as cedents continue to pour a lumpy, inconsistent mixture of information into the top of the funnel — unstructured spreadsheets, emails and PDFs — reinsurers face a world in which the digital tomorrow never comes.”
Supercede compiled its report from 30 interviews with global reinsurers, brokers and carriers.
The reinsurance platform reported that both loss and combined ratios suffer the consequences of these bad data-driven cost increases. On top of this, cedents with incomplete data sets typically aren’t considered for tailored reinsurance offerings, which come with more favorable terms.
“If you have a company that you have all the info on and is part of your risk appetite, you’re really ready to put in the maximum capacity you can,” Florian Bricka, vice president, treaty underwriter, for PartnerRe told Supercede. “However, if there are still grey areas, you pass or start with a smaller share.”
Eric Jenck, EMEA chief underwriting officer for SCOR, told Supercede that account-by-account underwriting is less common today and only happens “if you have evidence for the portfolio management actions you claim to have taken.”
What reinsurers want to see
- Be transparent: When reinsurance underwriters find missing pieces of data they make a few assumptions: The first is that the cedent must has the information if they are writing the underlying business. They then might conclude that the cedent is either withholding the data for some reason or is writing the portfolio without paying close attention, Supercede reported.
- Be authentic: The story told to reinsurance underwriters should be backed up by the data provided, with one underwriter telling Supercede that submissions should “reflect the signals communicated throughout the year.” As such, aligning the narrative and data is mission critical to capturing the most favorable rates and terms.
- Be the low-hanging fruit: Make it easy for reinsurance underwriters to select your submission pack by providing well-structured data that is easy to extract and format for reinsurance pricing systems.
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