The benefits of spreadsheets versus an automated system are a popular debate when it comes to reinsurance programs. Spreadsheets have traditionally been used to store reinsurance data but, despite their long history, they appear to be a much riskier option when considering the disadvantages. Spreadsheets can cause major issues in any business enterprise and the reinsurance industry is no exception. Below I’ll share various ways spreadsheet disadvantages apply to the reinsurance world and why an automated system is a safer, more efficient, and cost-effective solution for your business.
1. Limited capacity
In late 2020, much to the U.K. Government’s embarrassment, nearly 16,000 positive COVID cases had disappeared from the U.K.’s contact tracing system. Excel had run out of numbers! XLS supports 65,536 rows and 256 columns while XLSX supports 1,048,576 rows and 16,384 columns. For many use cases, that might sound like loads of capacity. In the reinsurance industry, however, some larger clients have upwards of 500,000 policies and generate a new row of data for each new increase or decrease in face amount. As a result, 1 million rows can fill up very quickly. Even for smaller clients, putting purpose-built tools in place that can handle business expansions, new products, and data tracking is important.
2. Lack of controls
Spreadsheets do not possess any comprehensive built-in, automatic audit tracking function (other than the basic Track Changes function) or log of change. There is always new data entering spreadsheets and new users managing them, but Excel offers limited collaboration options unless every user has an active Microsoft 365 subscription. This can lead to many questions. For example, who accessed the data last, who did what and when? How do you know if the calculations are correct? How do we know results are accurate after months, quarters, and years of use? How can we find the prior value and know how much the values have changed over time? How do you know you are working from the most up-to-date and accurate data? What controls are established to ensure the spreadsheet remains bug-free?
The answers to these questions are easy to find when using a reinsurance system. Multiple people can look at and work on updated data simultaneously with confidence in the data quality.
3. No data backup
If there are no best practices – or any processes at all - in place for proper spreadsheet storage or backup, your reinsurance program is at major risk when disaster strikes. If something happens, full data recovery can be very difficult – if not impossible – and can have a major impact on your business.
4. Difficult to troubleshoot or test
Spreadsheets are notoriously difficult to troubleshoot or test, simply because they aren’t built for that. However, testing should be an integral component of the quality controls you put in place to maintain accuracy across reinsurance programs. When spreadsheets are saved in different folders, departments, or even geographical locations, it becomes much harder to implement and conduct quality control processes.
The Calc Trace feature in the TAI Reinsurance Administration System enables users to review the entire calculation for a reinsurance payment in detail. This includes premiums, commissions, and taxes for an individual policy and empowers the user to conduct their own checks to ensure the system is operating as expected. It also allows teams to quickly answer a frequently asked question from reinsurance partners with confidence: “How are you calculating this premium?”
5. Regulatory compliance challenges
Ensuring regulatory compliance for your reinsurance programs is difficult when using spreadsheets because the data can be more susceptible to fraud and errors. Over the last two decades, we’ve seen a surge in global regulation that can affect spreadsheet-based reinsurance systems, including:
- Serbanes-Oxley (SOX)
- Dodd-Frank, Basel III
- Solvency II
- FAS 157
Looking ahead, the industry will continue to become more regulated on a global scale. Finding ways to reduce operational risk and increase compliance standards should be a priority for reinsurance teams.
6. Difficult data security
For regulated ceding insurers or assuming reinsurers, some data must be kept restricted and some data must be made shareable. Controlling data access and restrictions on spreadsheets is possible to a certain degree. Unfortunately, it can become challenging over time when there are hundreds of spreadsheets to manage and scores of users requiring detailed access rights.
With a dedicated system, data security can be easily controlled by giving users specific access rights. This offers control over who has access to authorized information and who does not. When a reinsurer visits to conduct an audit, the client can easily provide them with specific access to the data associated with their treaties.
7. Potential for errors and untimeliness in reporting
Management needs timely and accurate information to make robust decisions about their reinsurance program. Today’s ‘on-demand’ society has increased expectations for getting immediate, real-time access to data. This expectation can be difficult to meet with spreadsheets because the data is often coming from multiple sources. It takes time to coordinate and assemble and, unfortunately, can also be prone to errors with multiple people managing the process. It’s estimated that 9 out of 10 spreadsheets contain human errors. Missed negative signs or misaligned rows may seem harmless, but they can lead to considerable loss to the bottom line and damage the confidence of business investors or other stakeholders.
A dedicated reinsurance administration system makes on-demand reporting achievable with automated report production. Automation saves time spent manually producing reports and ensures more accuracy in data, as there is limited room for human error.
8. Business continuity
Major changes are transforming the business landscape and we know from experience that the insurance industry is part of this change. Examples of this include large-scale business transformation programs, merger and acquisition activity, and Management Buyouts.
In reinsurance programs, spreadsheets often become highly personalized to each user’s preferences and work style. When it’s time for a new person to take over as part of a large-scale business change, spreadsheets could be so personalized that the new person must start from scratch. Unlike a system, there is no manual from the spreadsheet owner on how it functions. This can cause major productivity inefficiencies and, once again, can make the data susceptible to errors if a new person is left guessing.
9. Scales Poorly
As an organization’s reinsurance program grows, data in spreadsheet-based systems become more distributed; subsequently compounding all the risks and issues outlined above. With long-term business objectives focused on growth, spreadsheets will create challenges in the future.
How can you reduce the risks associated with using spreadsheets?
Invest in a dedicated system that automates the process of administration.
At TAI, our core purpose is to empower Life Insurers to optimize the administration of their reinsurance programs. We provide systems that automate over 90% of manual processes, providing seriatim level reporting to reinsurance partners and internal stakeholders. Our solutions are focused on delivering administrative efficiencies and reducing financial and operational risk.
Watch this video for more on TAI’s industry-leading software or if you’d like to see this product in action, reach out for a demo.