Treaty Renewal 101: Major Considerations for Board Member

As most insurers in Indonesia are facing reinsurance treaty renewal, it is important duty of Bord of Directors to gather all executive member of the organisation and invest valuable time in determining the risk objectives of the organisation. Your 2 days intensive meeting would have big impact to the next 12 years business process or results and would reduce the time spent on weekly or monthly production meeting. The proper risk analysis performed by the insurer, or in conjunction with its reinsurance broker, will address the following considerations:

  • What is predictable risk versus unpredictable risk? Considering the trend of new economy and the demand of insurance cover from direct clients, brokers, banks, agents and your other captives market.
  • Is coverage purchased for losses occurring during a 12-month calendar period or for
    policies or risks that attach during a 12-month period?
  • Is coverage purchased just for the rare catastrophic claim or for more frequent types of
    large claims?
  • What is the appropriate reinsurance deductible for the insurer, and how is it stated? What limits you from managing the retention? Geographical area? Hours or days? Source of loss? Conveyance? Usage? Etc.
  • How is the maximum reinsurance limit stated? Apart from earthquake, would you start to discuss with your broker to develop your own modelling tool for certain perils? How do you respond to long term cover products (more than 10 years) and what would be your premium and claim reserve methodology?
  • How do any special deductibles impact the reinsurance layer? IF you understand your risk better, would you start to plan the implementation of special deductibles? To keep your risk volatility on certain level.
  • Do you want risk fully transferred on a non-participating basis, or do you want to retain a portion of the risk through a participating or other type of basis?
  • How are costs for claims management shared? Have you moved towards the discussion on sharing the claims cost or do you prefer to accomodate this on other treaty features. A long term products might give you burden on claims cost if the loss trends occurred during the first three-years of contract.

Last but not least, the boards end executive member should take into consideration the desire of moving towards new branches as an impact of internet of things (IoT), as speed & accuracy have become the winning criteria in servicing all industry including insurance.

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