Can Standardisation Really Work in Reinsurance?

In reinsurance, when we talk about standardisation, we are of course referring to the development and adoption of common processes and agreements to enhance efficiency and consistency across transactions. Standardisation helps streamline communication and facilitate agreements between reinsurers and ceding companies.?

But is there any evidence of standards actually working for the industry??

In short, yes. Although some may debate me on that. Organisations like ACORD (Association for Cooperative Operations Research and Development) have worked on standard policy wording, contract structures and industry specific frameworks for ages now. These things take time, but things that are worth it often do.?

Let's look at some of the difficulties that often arise when discussing standardisation in reinsurance and the reasons why I believe it's worth rising to challenge anyway.?

Lack of flexibility VS enhanced efficiency

Standardisation may impose rigid structures. Rigidity does not lend well to accommodating unique situations outside of the norm and this therefore can be a drawback in transactions that require a level of customisability or flexibility.?

What I say to anyone worrying about the freedom and flexibility of their reinsurance company in the face of standardisation is that firstly, not only is the operational efficiency gained through standardising well worth the rigidity trade off, but also it doesn't have to be a trade off at all.?

A flexible framework can coexist with standardised practices in reinsurance by incorporating tailored elements within established norms. Field Service Digital calls this balance the 80% global, 15% local, and 5% situational. This implies that the way forward is to account for local, contextual and situational workflows at the above ratio in order to truly reap the benefits of following standards, such as the unequivocal improvement in operational efficiency, without losing flexibility where needed.?

Stifled innovation VS better communication?

If one was to play devil's advocate then it could be argued that a standardised reinsurance environment may discourage innovation as companies adhere to established norms. This could limit the industry's ability to adapt to emerging risks or explore novel approaches to risk transfer.

I could find no evidence to support this view because it appears it is just that: a viewpoint. It is not true that implementing highly developed and sophisticated standardisation policies will lead to a reduction in innovation at any reinsurance company. What you CAN look forward to is better communicative tools which not only reduce costs but also enhance efficiency and provide a central repository for data. For this, there is proof. Quoting studies by McKinsey and Accenture, Utilities One states that companies who implement standardised communication structures can see up to 25% process improvement in terms of productivity and decision making, and can also save up to 25% on communication costs.?

You may even go as far as to say that this enhanced communication could feed into innovation. After all, it is when people come together that good things happen.?

Complex implementation VS interoperability

Implementing and maintaining standardised processes can be challenging, especially for smaller or less technologically advanced reinsurers. This is even more so if the company is resistant to digitisation. If you find yourself struggling with the concept or reasoning behind digitising your reinsurance company, I recommend giving my article ‘Three Potential Roadblocks Reinsurance Companies May Face and How Digitisation Can Help’ a read. Achieving consensus, adapting to regulatory differences, updating technology and overcoming resistance are key hurdles in maintaining uniform practices. But again, I'm going to tell you why it's worth it.?

It's all about interoperability. Standardisation facilitates interoperability between different systems and participants in the industry. It means no more disjointed, incompatible systems, no more siloed data and no more unnecessary delays in information sharing between parties. There's a reason why insurtechs like Tremor Technologies, Inc. (exit) have launched system features specifically built to keep transaction information in one place and improve communication. Having a standardised central repository where all information for each transaction is present and organised the same way is incredibly valuable when you're a busy reinsurance company with bigger fish to fry.

I hope I've given a fair enough overview of the standardisation debate here, although it's clear to see which side I reside! Having worked closely at one point with Ruschlicon and the Acord standards, I have seen first hand what advantages it brings.?

I'd love to share my insights with you so if you'd like any more information or advice on the matter of digitisation or getting on board with standards like Acord, visit my website to get in touch. ??

https://www.buondrius.com/ ?

https://fsd.servicemax.com/2022/06/21/standardization-vs-flexibility-how-to-shape-your-service-transformation/

https://utilitiesone.com/the-importance-of-communication-infrastructure-in-the-age-of-digital-transformation