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The Top Five Mistakes Reinsurance Buyers Make

September 11, 2020

Are you still making multimillion dollar decisions with almost no market data?

Reinsurance purchasing is a huge black box for management teams. There is no way of knowing the market clearing price for protection. Instead, reinsurance purchasers determine pricing with individual negotiations, incomplete data and educated guesses. So executives spend millions of dollars on protection without complete market information.

This is just one of the five key mistakes made by reinsurance buyers. Tremor Technologies helps reinsurance buyers avoid mistakes like this by leveraging our “smart market” platform to price and clear transactions competitively.

These are the five biggest mistakes made when buying reinsurance:

1. Using the wrong information to make decisions

Reinsurance purchasing is a huge black box for management teams. They don’t have the accurate and complete market data needed to develop a coherent pricing strategy. Instead, reinsurance purchasers determine pricing with individual negotiations, incomplete data and educated guesses. Brokers negotiate individually with reinsurers, but these discussions are nonbinding and time consuming.

When you buy reinsurance through Tremor’s smart market, it’s as if you choose terms and pricing with complete access to each market’s underwriting guidelines and risk appetite. You always pay the market clearing price and get the coverage that’s the best value for you.

Best of all, cedents and their management teams receive valuable post-auction data analytics including never before seen trading data highlighting the full market for their program. With this reporting, insurers gain a competitive advantage in the market, gathering insight for future pricing decisions.

2. Relying on consensus

There is a perception in the market that most reinsurers are willing to sell identical protection at the same price. This is false. All reinsurers are not selling the same protection for the same price during a specific time window. In fact, bids can vary by as much as 500 bp at the same quantity of limit. It’s a clear example of an inefficient market.

With Tremor, all reinsurers submit blind sealed bids during the same time window, empowering Cedents to contract with unparalleled confidence.

3. Not leveraging technology to determine pricing

All major capital markets utilize robust technology for price discovery. We all know that reinsurance pricing is extremely complex. There are thousands of permutations and combinations related to ROL, layers of risk, dependencies, subjectivities, credit risk management, etc. The truth is that no human being can efficiently process thousands of data points to optimize pricing and allocation. Only a technology engine can make these computations.

Tremor’s matching engine has the capacity to calculate optimal pricing for a placement with an unlimited number of reinsurers, regardless of the structure, linkages or dependencies.

4. Failing to value their time

What if a ceded reinsurance team could shave five weeks off the placement process? They’d have a five week headstart on the rest of the market, a broader choice of reinsurers with more risk appetite and more competitive pricing. The team could use that time to pursue new business growth opportunities or get a headstart on analysis and planning. What would you do with five extra weeks?

Tremor’s process is designed to elicit clear, actionable information quickly. Tremor’s typical auction lasts 3-5 days, pricing and allocating risk just hours after the auction closes. So lines can be priced and signed in days instead of months.

5. Accepting chaos

The market for reinsurance is a chaotic mix of reinsurers, preferences and pricing terms, dependencies and constraints. Ceded Re teams can try to simplify things by working with intermediaries and limiting their scope to a set panel of reinsurers. But the chaos does not go away.

The only way to create calm out of chaos is to leverage technology to transact with efficient, transparent markets.

It’s time to modernize reinsurance pricing. Tremor’s platform incorporates intelligent market design, state-of-the-art auction technology and sophisticated optimization techniques to vastly improve how risk is transferred around the world.

Ready to learn more? Reach out to one of our marketplace experts.