Constrained pricing and persistently low interest rates have made reinsurance increasingly important for insurers looking to reduce costs. And for mid-market insurers, reinsurance administration is a new priority from a technology standpoint, says Tom Brock, assistant vice president corporate accounting of Motorists Insurance. The regional carrier recently implemented Effisoft USA’s WebXL in an effort to consolidate systems, eliminate manual processes and drive efficiencies.
INN: What’s the problem you were trying to solve with Effisoft?
Tom Brocks: We have some fairly ambitious growth plans, so we were looking to position ourselves for more complexity and a greater volume of reinsurance transactions with the same staff. But we had overgrown our existing environment: a disconnected assortment of Excel spreadsheets and a [Microsoft] Access database and for computations. Basically, we were seeking to improve productivity, strengthen controls and cut costs within the reinsurance arm of the accounting and finance division. And we needed access to data. We needed stronger controls and superior means of processing, reporting and analyzing our information in an integrated system.
INN: Tell me about the systems that you used for the process originally.
TB: We had an Access database that we used for billing and collections processes and it computed reinsurance on a handful of legacy claims. More modern-day reinsurance claims were all computed in Excel. We literally had an Excel worksheet for each claim that was subject to reinsurance.
Whenever we had a catastrophe, it was a huge manual effort that entailed downloads from our claims system, all kinds of scrubbing to make sure we were within our 96-hour or 72-hour allotment -- whatever it was -- making sure the right claims were included, and the ones that weren't subject to reinsurance were excluded. All of this was in a very manual environment. We had an old claims system that computed some reinsurance. We had programmed it in house, but when we converted to a more modern day system. It was called Heritage; it had a little bit of reinsurance functionality, but we have since transitioned over to Cosmo, CSC's product. We did not have any reinsurance logic within it.
INN: Are you still using Cosmo as your claims system?
TB: Yeah, about five or six years ago we started putting our affiliates on it. More recently, we've identified Guidewire as a solution for the future. No new companies will be going up on Cosmo, and at some point we're going to make a decision on transferring open claims over or just running them off. We haven't made that decision yet.
When we implemented with Excel, Cosmo was the platform we were going toward for all of our affiliates. Only two or three of our largest affiliates had made it onto Cosmo. Our scope for the WebXL project was all claims on Cosmo. Since then, we've made an investment on Guidewire, and we're implementing it right now. I think it's set to launch in 2017. So things will change in the future.
INN: Sounds like a lot of moving parts. How did you select Effisoft?
TB: They came to the table after our RFP search had begun. We were not overly impressed with the other vendors, which were used to building systems for the big reinsurers that were issuing the business. But they weren't filling the mid-market reinsurance needs we had. Effisoft impressed us because they exhibited a lot of confidence. They made it seem like all of our needs could be customized from their base product and the cost all was very attractive, partially due to their trying to make in-roads into the U.S. market. So it was a great opportunity to establish a partnership.
INN: So when you talk about customizations, is that programming or configuration?
TB: They changed their product to encompass some of our unique needs because they knew it would be marketable to other firms. In Europe, some of the catastrophe reinsurance isn't as critical as it is here in the U.S., so they weren't used to some of the treaties and logic we maintained. So they built that. We also had a very granular way of allocating our recoveries down to the various claim elements. They had to modify their product to accomplish that, too.
INN: How long did the implementation and the rollout take?
TB: We launched the RFP search in February 2011; WebXL came on the scene in February, 2012. And then we had a lot of shifting priorities. We penned the contract in February 2013, and implementation was launched shortly thereafter. Again, we hit some shifting priorities, so the project stretched through to February 2014.
INN: Tell me about the ROI with the WebXL?
TB: We now have one senior accountant, the primary user, who maintains the applications and runs the day-to-day processes. Some other members of our team use it and are familiar with it, but we definitely streamlined the labor associated with this function. We've tightened the controls. We had a lot of downstream checks and balances to make sure everything was fine. It took a ton of effort to be comfortable. We don't have to exert that kind of effort any more. We have a secure, centralized, fully functioning system and it makes auditors and examiners more comfortable. And we're able to streamline workflows with those automated computations and the storage of the collectibles and the receipts. It's also improved our risk management capabilities, and it positions us to respond more effectively to regulatory inquiries and other things.
INN: Tell me about the regulatory impact; what are you on the hook for now and how is it better?
TB: The largest regulatory reporting requirement when you're talking about reinsurance is Schedule-F reporting to the NAIC. It’s a way for them to monitor credit exposure. They want to know -- at a very granular level -- who you're owed money from, where they're located, what kind of aging of receivables in going on, how exposed you are to a given reinsurer or a handful of reinsurers. So it really comes down to credit exposure; what does the leverage of your balance sheet look like in terms of these reinsurance recoverables. And, during the annual reporting process, the required detail is much greater than throughout the year. You'll also have random inquiries from various states you do business in, trying to understand your credit risk.
This is not so much a regulatory thing, but brokers, rating agencies; they want to get a lot of insight into your reinsurance activities. This enables us to have more timely insight into the numbers and be able to report on them a little bit more effectively with more transparency.
INN: What’s next in terms of rollout and functionality?
Tom: There are still opportunities to enhance our workflows throughout the division. With so many things in flux, it would really feel great to put more and more of our claims activity through this system because the more we get on it, the easier everything gets and the more efficiency we'll gain. We had to start somewhere, and we started with the primary claims system. In the future, we could run all of our claims data through the system.
INN: What are you not running through it currently?
TB: We have eight P&C companies. We put four of those eight went up on the system with this implementation -- probably 60-to-65 percent of the overall claims volume. Some of our affiliates never got onto Cosmo, so they were never within our scope for this project. Now they'll be making the jump over to Guidewire. We need to determine at which point it makes sense to convert them onto WebXL. There have just been so many things in flux right now. It's been a challenge. I think we could also look at some opportunities to maybe do something on the premium side of the house with our seeded premium. We initially defined a scope to include the claims side, and that's where you're able to compute all of the insurance just by loading up the claims. We may be able to enhance our premium accounting if we were bringing in the policy side activity. So we're thinking about that.
INN: When you do this next batch of insurers, what are you going to do differently, other than they'll be on Guidewire rather than Cosmo?
TB: I wouldn't do anything differently when it comes to putting new companies into WebXL. We planned comprehensively, but I think we underestimated the complexity of some of the custom development work that was required, reactive to the cost and duration of the project. In hindsight, we probably should have established a better understanding of the extent of the work. Effisoft did an excellent job of conveying confidence and, "Yes, we can do that! Of course, yes, no problem." Maybe a few of those of courses’ we should have paused on and said, "Let's talk about this a little bit more."
INN: What is the one thing you want readers to know when they're turning the page on this story?
TB: I'm going to grab a line from our CEO's vision: Motorists Insurance Group is made up of smart people looking for a better way to do things. We are striving to be continuously innovative.
