If the Reinsurance industry uses data as its source of the truth, then reinsurance treaties are the judge and jury of reinsurance data. Treaties are also something you will quickly become acquainted with if you are new to the reinsurance industry. Learning to navigate treaties goes hand-in-hand with understanding reinsurance data which I discussed in my previous post.
When I first entered the reinsurance world I knew nothing of treaties. In fact, I didn’t know much about reinsurance in general. I was simply fresh out of college, looking to dip my toes into the “real” world. In one of my interview questions I was asked “How comfortable are you with reading through treaty documents”? My answer “Oh, I am very comfortable. That won’t be a problem”. What a white lie that was. They might as well have asked me to dunk a basketball. In case you were wondering, no, I can’t. So to save you from having to tell a little white lie – let me introduce you to treaties. Here are 4 tips to navigate reinsurance treaties.
You are working with historical documents
Treaties are long, complicated, and can be downright confusing. I always joke that treaties are written in Latin and nobody knows Latin. While that is not entirely the truth, it is very important to pay attention to the words and clauses being used within a treaty. Sometimes when you open a treaty it feels as though you are in the Qumran Caves in the Judean Desert, reading through the Dead Sea Scrolls and expecting to see Moses’ life insurance policy listed below. Periodically I come across documents that are older than I am! And while technically, its not that long, it’s a good reminder that terminology has changed. Things that once were used in common practice are now outdated and as a result, can be misunderstood. My advice? Always remember to read and ask “what did they mean?”. I recommend consulting your colleagues as well. Do not make assumptions because that can lead to errors.
Always go back to the treaty
Treaties help to police data anomalies and hold people accountable for their clerical, and sometimes, typing mistakes. Anytime I ever question the validity of data, I always go back to the treaty, always. While it means you might have to go back to the client to ask a necessary question – not asking them could lead to dollars being owed to one party or the other. Does this mean the answers are always there? Absolutely not, but it at least gives a guide or rule book to follow when questioning whether or not something is right.
The role of compliance
Treaties spell out language for how a policy should be paid, expensed, governed, and eventually paid as a claim. The way I see it, treaties are the law, and compliance folks are the jury who decides if that law should be upheld or not. Putting quality controls and compliance testing in place can help reduce the risk of major financial losses from treaty errors. Unfortunately, reinsurance treaty errors happen more than you might think. This is why we have a team dedicated to assessing treaty data, ensuring the specified block of business is performing as expected and achieving data output needed to maintain a steady state.
Understand the whole truth
Treaties are a legal document but that doesn’t absolve them from contradiction and imperfections. I have seen a treaty state a piece of information – a jumbo limit number – that totally contradicted information further into the document. It is always important to understand the whole truth before passing judgement and making assumptions. There is so much legal jargon that is constantly being reused in and across treaties for a given company. It is sometimes hard to tell the actual truth from someone who ‘cut and paste’ verbiage 20 years ago and didn’t bother to go back and fix it. Always check and recheck.
If you haven’t noticed by now, the reinsurance industry is heavily reliant on historical data – that is often in historical format as well. So in order to navigate through them successfully, it is essential to do your due diligence to understand treaty information. Live it and breath it. And while errors exist, there are ways to mitigate the damage they can cause – like implementing these 4 checks & tests. Read about them now by clicking below.