The current renewal season has been one of the most challenging in decades. With many cedents struggling to find the capacity they need and many reinsurers waiting to see what the rest of the market does, it is easy to feel like the market has stalled. It doesn’t need to be this way – with a modern market design and proper incentives, placements go from contract to coverage in a fraction of the time.
We recently analyzed our past placements to see how much our modern market design speeds up the process. The headline result is night-and-day – Tremor’s Panorama process accomplishes in five days (on average) what it takes firm order terms weeks to resolve. More insightfully, though, it demonstrates how key market design ideas can drive that speedup:
A common schedule with natural consequences for missing deadlines can synchronize the process and place risk much more efficiently (to everyone’s benefit).
Contract wording can typically be finalized quickly as long as participants have a reason to get it done.
Building on these ideas, Tremor’s Panorama has the right combination of schedule and incentives to reduce a multi-week process to a matter of days.
An overview of the Panorama process
Before we look at the data, we need to understand exactly what happens in a Panorama placement. The Panorama process places risk more efficiently by tackling key steps in a new order and establishing a clear schedule:
Contract – Before pricing the risk (authorizing coverage), reinsurers are required to finalize contract wording with the cedent. This motivates both parties to resolve wording issues in a timely manner. (In certain circumstances, substantial material differences in coverage may be deferred and priced separately, such as a pandemic exclusion.)
Authorization – Reinsurers indicate pricing during a scheduled authorization window (3.5 days on average). Only reinsurers who authorize on time will be considered when the cedent finalizes what it buys (next step), creating a natural incentive for reinsurers to authorize on schedule.
Price and terms – With aggregate market data compiled from reinsurer authorizations, the cedent has everything they need to finalize (concurrent) pricing and any unsettled terms issues. On average, pricing is finalized 1.6 business days from the end of the authorization window.
Signing – Coverage is finalized; it takes a day or so to collect signatures.
Altogether, Panorama goes from contract to coverage in an average of 5 days (steps 2-4), and everyone plans ahead to finalize contract wording ahead of time.
We compiled data from past placements so we can analyze how Panorama events progress. We looked at two key events:
Wording approved – Each reinsurer must discuss contract terms and wording individually with the cedent (for a typical placement, everything except final pricing and lines). When agreement is reached on the contract and I&Ls, the cedent marks the reinsurer as approved. Ideally, this would happen before the authorization window begins, but the only hard deadline is that it must happen before the end of the authorization window so that the reinsurer has time to authorize coverage.
Authorization submitted – Each participating reinsurer must submit its authorization on Tremor before the end of the authorization window.
The graph below shows, on average, when reinsurers are approved and when they authorize coverage (skipping weekends). For example, the authorization window lasts ~84 hours on average and, according to the blue line, more than 75% of participating reinsurers have been approved 24 hours into the authorization window.
Two observations stand out:
Having a clear and meaningful authorization deadline speeds up the process. The cedent cannot really finalize the placement without authorizations from everyone. Unfortunately, without a deadline, those authorizations trickle in over time, holding up the process for the cedent and reinsurers alike. In contrast, if everyone authorized coverage at the same time, the cedent could quickly finalize coverage and wrap up the placement. In theory, Panorama’s authorization window is designed to synchronize authorizations by creating a deadline with natural consequences (reinsurers must meet the deadline to be included in the final placement), and our data backs up the theory – we see that more than half of authorizations are submitted in the last 24 hours of the authorization window, synchronizing the process and speeding it up. With Panorama, the cedent gets faster placement and reinsurers only need to wait an average of 2.5 days to get final results.
Having a contract wording deadline works. Contract discussions are one major reason that FOT can take a month or more to finalize lines because they can go on indefinitely. Many reinsurers are skeptical when they first learn that Termor requires contract wording to be finalized up front; afterwards we typically hear that they are pleasantly surprised how well it worked. Our data clearly shows that the start of the authorization window is an effective soft deadline for parties to finalize wording – most reinsurers are marked as approved around the time the authorization window starts, with less than 25% trickling in after the first 24 hours.
The process is broken today and everyone suffers. If you want to learn more about how Panorama can make your placements more efficient or generally learn more about Tremor, we’d be happy to give you a demo or answer your questions. Reach out to us!