Reinsurance buying is a complex process that can put your assets in jeopardy if your reinsurers don't pay, or if you don't buy sufficient limits. The cost of reinsurance is a major expense for insurance companies. Spend too much and your profits suffer; buy too little, and your company's surplus may be dangerously exposed. These three strategies will get you the best terms and conditions from your reinsurers.
Strategy 1 - Optimize your risk selection
Writing policies with a high probability of loss will increase both the volatility of your book of business and the cost of your reinsurance. Your reinsurers will price this higher volatility into their quotes. If you write property or homeowners insurance make sure you check the AAL for catastrophe potential, and other factors such as location, fire protection class and upkeep of the property. Commercial casualty and workers compensation underwriters should balance their books of business by considering the class code of the business you are insuring.
Strategy 2 - Keep your rate filings up to date
Just as you encourage your policyholders to buy adequate insurance limits to reflect the current cost of replacing their assets, insurance company management needs to keep rate filings up to date. Writing business at inadequate rates results in under-performance of company assets. Buying reinsurance under these circumstances increases the cost of reinsurance relative to your exposure premium. Applying the right rates will not only reduce the percentage of your premium you pay for reinsurance, but provides more premium to cover acquisition costs and corate exposure data
Having accurate exposure data for actuarial and catastrophe modeling is essential to ensure you are buying adequate reinsurance. For catastrophe modeling, you should have geo-coded location information for each policy as well as detailed construction information. Otherwise, the catastrophe models might underestimate your catastrophe PML, resulting in the purchase of inadequate catastrophe limits. Casualty and workers compensation exposure in the form of audited payroll and/or sales figures are essential. A complete limits profile is essential for per-risk contracts, whether for property or casualty business.
These three strategies may take some time to implement, but will pay off for you in the long run by getting you the right amount of reinsurance at the right price. Most of these changes can be implemented with in-house staff. You may need a consulting actuary to ensure your rate filings get approved.
Bonus Tip: What To Do Next To Buy Reinsurance The Right Way
To buy reinsurance the right way, you need the right expertise and the ability to perform the proper analysis.
Get started now buying reinsurance that will give you peace of mind by going to http://usre.com
Brought to you by Paul Dzielinski, the expert in reinsurance.
Article Source: http://EzineArticles.com/?expert=Paul_Dzielinski
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