What is reinsurance broking? What do they do exactly? What's my role in it?
These are the questions that nagged at my mind when I initially joined the industry. I constantly felt like a little kid out in the field ready for war but struggling to understand where we can contribute and how the big picture is like.
Thankfully, over the course of a year, my exposures allowed me to appreciate and comprehend the essential functions of a reinsurance broker amidst the industry's overall supply chain.
" These are exciting times to be a reinsurance intermediary. Our insurance clients worldwide are increasingly looking to us for both strategic and transactional support in their quest to achieve profitable growth " - David Priebe, Vice Chairman of Marsh & McLennan Companies' Guy Carpenter
Surprisingly, the answers can be succinctly found in the Reinsurance Basic Concepts exam I took recently. It highlighted nine fundamental services and reasons for using a reinsurance broker:
1. Reinsurance Expertise and Technical Advice
To fact-find and provide insurers with independent advice on designing and placing reinsurance programmes. These technical expertise can include catastrophe modelling and enterprise risk management. Some outstanding brokers are even able to 'underwrite' risks themselves before showing it to reinsurers (more applicable in facultative reinsurance).
2. Market Intelligence and Data
An experienced broker is able to gather and monitor data to provide trends and opportunities for both insurers and reinsurers. Their understanding of how a reinsurer operates and make decisions will help greatly in getting insurers' risks accepted.
3. Cross-border Access for Reinsurance Solutions/Capacities
Reinsurance brokers tend to be able to access the various national reinsurance markets better, especially if they have international operations at these locations. Smaller brokers are also able to achieve the same results by partnering with other reinsurance brokers overseas. Essentially, this cross-border access allows a smaller insurers to seek reinsurance globally.
4. Inspection of Potential Reinsurers for its Counterparty Credit Risk, Services and Credibility, among others.
While we all have AM Best for reviewing the Credit Ratings of Reinsurers (which can be highly time-consuming to monitor), reinsurance brokers are usually privy to the services and credibility of reinsurers and can help to protect both insurers' interests.
5. Claims Processing
Delegation of reinsurance claims processing and recovery so that insurers can focus purely on the direct policyholders' needs.
6. Finalising Reinsurance Contract Wordings
Ensuring Contract Certainty Guidelines are adequately met and both parties have clarity on the terms and conditions of the policy. Additionally, to provide documentation for both parties.
7. Administration of Reinsurance Contracts and Settlement of Balances (Premiums, Claims, Fees)
The heavy lifting and workload can actually come after a reinsurance contract is placed. For treaties, it could relate to the Quarterly Accounts. For facultative reinsurance, monthly statement of accounts are supposedly to be generated for review (but this is thankfully rare).
8. Filter Reinsurance Risks to suit Reinsurers' Risk Appetite and Portfolio Objectives
This is akin to a sniper having a spotter right by his side at all times to guide the reinsurance underwriter in where best to 'take a shot' at and underwrite a risk.
HowStuffWorks has these to say about the sniper/spotter relationship,
- " The most important job of the spotter is to protect the sniper and the team " ;
- " The relationship between a sniper and his spotter is very important. Both depends on each other for survival. "
9. Compulsory in Certain Markets (e.g. Lloyd's of London) to place businesses with a Lloyd's Syndicate through a Lloyd's Broker
In summary, my current opinion of a reinsurance broker is that they help both reinsurers and insurers to maintain a profitable book of business by improving their premium income, reducing their risk exposure and save on operational costs through the 'outsourcing' of reinsurance-related processing and services.
Edit:
10. Obtaining the most competitive rates and terms for the client
Last but not least, as a reader rightly pointed out, one of the fundamental role of the broker is to negotiate and procure the most competitive premiums, rates and terms for their client. This could be achieved by bundling different businesses together for the reinsurers and could even help in encouraging reinsurers to accept a risk which it might have declined.
" We must consider ourselves as custodians of our market, responsible for leaving it a better place than that which we find it " - Steve Hearn, CEO of Wholesale Broker Ed
What's your opinion on reinsurance brokers? Do you think that reinsurance brokers are necessary? It will be interesting to explore the reasons and scenarios leading up to an insurer and reinsurer skipping out on reinsurance brokers and dealing with each other directly.
Source: SCI's Basic Concepts and Practices, HowStuffWorks
