Connecting the (re)insurance world
Three years ago, coupled with a consultancy assignment looking at the cost of managing legacy business and Tawa’s own frustrations with the growing frictional costs of processing (re) insurance business, Tawa started to look at how technology could provide the answer. Steve Street, a Director of STRIPE picks up the story…
That insurance and reinsurance processing is inefficient is probably not headline news to anyone. The frictional costs of doing business in our industry erode the premium dollar, making the products more costly for the buyer while cutting into wafer thin margins for the seller. It was this conclusion that led us to consider how we could introduce a technology solution, initially for our own businesses to help simplify a complex and over engineered process (particularly when it comes to long-tail claims) and mitigate costs; costs driven up by a range of factors whether it’s too many touch points in the system, too many hand-offs, too much reconciliation, or simply too many inconsistencies. The result was the development of STRIPE (Straight Through (Re) Insurance Processing Environment). STRIPE is a web-based platform enabling insurers and cedants to deal with their (re)insurers directly, reducing re-processing of data. STRIPE supports the single keying of data and allows rapid, secure and evidenced delivery of transactions to all worldwide markets. It significantly improves cash flow through instantaneous notification to (re) insurers, eliminating backlogs and other inefficiencies associated with traditional claims collection processes.
Not for the want of trying
The (re)insurance industry is often derided for its failure to come to grips with technology and its history is littered with the remnants of IT initiatives that failed to deliver because they were simply too ambitious, too complex, or just too costly to implement. Perhaps though we shouldn’t be too hard on ourselves; this is after all a complex business environment we operate in. Legacy business can have tails of 40 or 50 years and records, often made up of fixed data and unformatted text, need to be maintained for up to 80 years. This complex market processing has led to the development of a multiplicity of in house systems which, because of the significant investment made in them, have had a longevity way beyond the norm. And because of that investment, it is of little surprise that many organisations stick to what they know given the perceived risk and exposure to their operations of moving to new systems.
None of this should be a barrier however to improving the time it takes to speed up collections and notifications or for finalizing settlement and commutation. Issues like these led us to start thinking about how we could develop a solution to effectively speed up the processing of legacy claims between cedant and reinsurer.
Taking the first step
In 2009, Tawa plc committed to the idea of developing STRIPE. At first we simply presented a model of what we were proposing, and asked the market what their reaction would be if they could use a system that did x and y. As we moved forward to a working prototype, we set up a user group to help us with the functionality and look and feel of the design so we could be sure that what we were developing was along the right lines.
The result, officially launched in 2010 at Monte Carlo, was STRIPE, which went live for our own businesses in that year. Subsequently, since we offered it industry wide, we have seen an increasing number of companies adopting STRIPE. Today there are nearly 150 companies connected to the system.
Rapid and transparent delivery
So what exactly is STRIPE and what does it offer? As previously mentioned, STRIPE enables the processing of claims and other post placement transactions directly from the insured or reinsured to its (re)-insurers. Though developed initially off the back of our own needs in the legacy space, it is now proving just as effective for current and future business, offering distinct time and cost saving advantages. These improvements have generated a growing interest across the live market.
In effect, STRIPE figures out the connectivity issues between parties and delivers the information to and from those parties via the web. It is able to work directly with all markets including the London Market through ECF (the London market electronic claim file initiative) and CLASS (claim loss advice and settlement system), where it has been necessary to involve a London based broker in the process. STRIPE is also capable of transacting Acord messages, an internationally recognised standard of messaging in the (re)-insurance market. This level of universal connectivity is critical.
Removing layers of process and cost
Ultimately STRIPE works to remove layers of process and cost wherever your business sits in the (re)insurance chain.
Benefits to insureds and reinsureds include:
• complete control and transparency
• improved cash flow;
• a single platform to access all markets and brokers;
• the opportunity to replace a non-performing broker on legacy business;
while for new business...
• an insured or reinsured can focus the broker on value-added activity such as placement.
For brokers, the benefits include:
• reducing processing costs (or even eliminating them) alongside increased efficiency;
• better client servicing as automation eliminates the need for broker re-processing and potential errors;
• potential to control or eliminate long tail processing obligations for legacy business; whilst for new business, an opportunity to focus on what they do best.
As far as (re)insurers are concerned, they will see benefits such as:
• better customer service and enhanced reputation;
• reduced processing costs;
• standard presentation of claims;
• reduced exposure to dormancy particularly from legacy business.
Using the system
So far, feedback from the market has been very positive. Examples of uses for STRIPE in the market:
• a cedant has adopted STRIPE to replace a traditional broker replacement contract enabling them to make significant cost savings;
• a broker has been able to reduce the cost of servicing business by utilising STRIPE;
• it has provided an International broker with the ability to transact directly in to the London Market, eliminating London broker processing costs, surely a good thing for the long-term health of the industry;
• a reinsurer using STRIPE has reported a significant reduction in processing costs whilst achieving improved speed of transaction and communication with its clients.
STRIPE does of course provide the option to reduce or eliminate the broker’s involvement in processing, and most brokers prefer not to be weighed down by the burden of back office processing long after any brokerage or commission has been banked. Brokers clearly prefer to concentrate on the areas where they add value — namely in the identification of risks, structuring programmes, placement and, claims advocacy if issues arise. The burden to the broker balance sheet in balancing the cost of processing versus adding true value to the (re)insurance transaction is becoming increasingly unsustainable and is even further exacerbated when looking at legacy portfolios where the client relationship is no longer current.
Embracing the challenge
So what are the challenges to market wide adoption of a system like STRIPE? Top of the list is probably tradition – and our industry is steeped in it – which can make it hard to persuade companies to adopt a new approach. People have a way of doing things and can be apathetic, if not resistant to change. Sufficient market volume however can create critical mass and with nearly 150 organisations now using and communicating through the STRIPE platform, that may be enough to persuade many that the risk of adopting a new approach is minimal and the potential upsides significantly outweigh any perceived risk.
A global approach
Global rules, not local standards, are critical, and the adoption of ACORD standards, for instance, has opened the door to initiatives like STRIPE. The good news is that this standardisation should see hubs like STRIPE competing for business, while market participants use their leverage to obtain greater functionality and even more value.
It’s been a long time coming, but with the advent of initiatives like STRIPE, we can at last say that the market is finally starting to realize real progress on how it uses technology to strip out those frictional costs.