Reassuring the Reinsurers

Reinsurance is a necessary part of Farmers Life's business strategy, according to Ayleene Hartman, reinsurance actuary with Farmers Life. "We've always had a good relationship with our reinsurers and we cede a lot of business to them, so it was critical we have good reporting and billing systems for them."

Farmers Life needed an automated system to manage the growth in its level term coinsurance block and to handle new reinsurance opportunities the carrier was developing, Hartman points out. The carrier also was creating multiple reinsurance pools as a result of reinsurance consolidations and reinsurance price increases. "Our home-grown manual systems were inefficient in handling the complex and growing volume of reinsurance business," she says.

Farmers Life turned to some of its reinsurers for advice in addition to contacting several reinsurance vendors. TAI received high marks from those reinsurers Farmers Life spoke with. "TAI was most responsive as well as being highly recommended," says Hartman.

It took the carrier six months to build a business case to purchase the system and evaluate the available vendors, notes Hartman. Farmers Life began the conversion process in the second quarter of 2006 and started implementing the coinsurance billing by November of that year, she adds.

The insurer put together a cross-functional team to look at conversion issues prior to the selection of TAI. The carrier team was joined by members of the vendor's team after the selection was made. Farmers Life had to create more than 125 reinsurance treaties on TAI, Hartman explains. "We pay our reinsurers monthly, and most other companies pay reinsurers on an annual anniversary basis," says Hartman. "There was a lot more checking to do in testing. TAI provided support through the conversion process, which helped a lot."

Hartman describes the TAI system as user friendly. "We are able to create our treaty arrangements easily in the system," she says. "[The system] provided the necessary reports our reinsurers required and allowed us to implement new arrangements very quickly."

Training did not hold anyone back, continues Hartman. "TAI probably came for a day or two at the beginning of the process, and then, just as we were about to convert, the [vendor] came for another three days," she says. "[TAI] knew its stuff pretty well. If you know reinsurance, it helps a lot."

After almost two years, Hartman attests the system has been working well. The carrier's primary reinsurance is coinsurance, and Farmers Life has been paying coinsurance premiums through the system since it was adopted. "We are administering 1.4 million reinsurance records for nine reinsurers," she says. "We would not have been able to do that two years ago with our old system."

The complexity of some of the policies has meant Farmers Life is not quite done with the implementation of the system. "Some of the phases took longer than we had anticipated," says Hartman. "We've been able to implement 99 percent of our reinsurance business, but about 2,000 reinsurance policies still are administered outside the system, and we have not had time to bring them in yet."

The carrier continues to work on validating the claims extract and the accounting feeds that were part of the original conversion plan but went lower on Farmers Life's priority list, Hartman indicates. "Those 2,000 [policies] are a type of reinsurance called Yearly Renewable Term (YRT) reinsurance, and they have been in the books for many years," she says. "We focused on our coinsurance block first and decided to do the YRT later because it was a much smaller part of the business. It's also not as intense to administer manually as the coinsurance." Hartman expects the YRT policies to be on the system within the year.

Without TAI, Farmers Life would have needed to hire additional staff to handle all the new reinsurance agreements implemented in the last two years. When the carrier started the project, the reinsurance staff consisted of Hartman and one assistant. As part of the project, Farmers Life has since added a systems manager, who coordinates with TAI, and an actuarial analyst.

"The reinsurance system has allowed [Farmers Life] to automate reinsurance transactions and implement new reinsurance arrangements quickly and on time," says Hartman. "It also has allowed us to have stronger audit controls."