For (re)insurers seeking to ease the bureaucracy of asbestos-related recoveries, an excess of loss reinsurance administration system developed for the London market could be a good investment. Adrian Leonard talks to its creator, Gavin Blem.

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A rising tide of asbestos claims - the third wave - has become a crimson sea of ink swamping London insurers, both active and ceased.

Claims are cascading in through the London Market Claims Service (LMCS), the joint, market-owned claims-handling bureau through which US lawyers channel claims instructions into London. Insurers are looking for reinsurance recoveries, as US liability policies issued prior to the introduction of effective absolute asbestos exclusions in 1985 are again battered by asbestos.

Recoveries require a great deal of effort by reinsurance claims technicians and, as the claims multiply, so too does the workload. Claims are generally received from the LMCS aggregated by insured by year of account, data which claims technicians must attach to the specific reinsurance protections they trigger as they travel upwards through the layers.

In some cases many hundreds of nearly identical claims must be channelled tediously upwards through reinsurance programmes. Most insurers manage the process using an Excel spreadsheet populated with data from their claims information system or a bespoke add-on to their claims software.

Next comes the paperwork - more and more of it. Asbestos-related recoveries require the completion of the London market's standard asbestos related claims form (ARCF), along with the usual recovery documents. In addition, reinsurers are beginning to insist on compliance with new reinsurance documentation requirements, an initiative led by Equitas, the run-off reinsurer of pre-1993 liabilities at Lloyd's. Equitas set out the need for the existence of documents conclusively linking original claimants' injuries to insureds' products.

Producing reports about recoveries is extremely time-consuming and sometimes impossible; in many cases the data needed to compile a bordereaux of recoveries related to, for example, asbestos claims, is not there as the claims have not been individually identified.

IT to the rescue

Gavin Blem, a pioneer of London market excess of loss reinsurance administration software, has an easier approach. In the late 1980s, while working as an adjuster, he noted the need for an IT system to map claims against reinsurance programmes for recovery. By 1992 he had launched XLRAS, an excess of loss reinsurance administration system.

Now in its fourth major release, the Windows-based PC application is to be enhanced through the addition of XLRAS APH to handle London market insurers' reinsurance recoveries related to asbestos, pollution and health hazard claims. The APH module can stand alone or work alongside a full XLRAS installation.

In each installation, XLRAS is fed with all the relevant data about the reinsured's outwards excess of loss protection, including coverage structure, reinstatement terms and underlying security. The system is built with the London market in mind, allowing for structures such as 'top and drop' reinsurances.

"It has lots of functionality to support all the creative contracts that underwriters have developed over the years and is updated almost every month to cope with new ones," says Mr Blem.

Less duplication

Claims are fed into the system as they occur through whatever host claims system is in place and the claims technician directs claims through the reinsurance programme along the appropriate route. The system can be programmed to feed claims with certain characteristics (such as the word asbestos in the description line) through XLRAS in a particular way, to reduce the need for multiple entries and duplicate effort. The software churns through the losses, attributing them to appropriate reinsurance cover, then illustrates recoveries due.

A final routine generates collection documents to forward to the relevant brokers or reinsurers, while the recovery information is sent to the relevant accounting and credit control software. Finally, XLRAS can generate a wide range of management reports, including the coverage charts that actuaries so enjoy analysing, and analyses such as the value of recoveries of a certain type that rest with reinsurers of a certain financial strength rating.

The APH module allows reinsureds to feed data from the LMCS directly into XLRAS and generates ARCF documentation as part of the production routine.

"It used to take four to six weeks to get documentation together for a round of recoveries for interlocking (that is, recoveries under risks-attaching reinsurances that involve more than one reinsurance contract period), any one loss, any one year, but with XLRAS I have that documentation out at the press of a button," says Neil Robinson, manager of the reinsurance department at Groupama Insurances in London. "An experienced reinsurance specialist still needs to be involved in operating XLRAS but they are always in control. This is fundamental and the flexibility it provides is key. That keeps it interesting."

Mr Blem emphasises that the technician retains control over the route that events travel through a reinsurance programme, as claims can be guided by user-defined 'rules' that automatically route losses to certain layers - a key advantage in voluminous asbestos claims.

"By using the rules processor, hundreds of events can be routed en masse," he says. "Then comes the calculation routine, a batch process routine which is really the cleverest bit within XLRAS. It has 25 automated stages, which result in the identification of recoveries. The technician reviews the results and authorises recoveries prior to the system producing collection documentation."

An IT-based system that focuses on asbestos-related claims and recoveries - or indeed any system that allows London's market to track claims and compile a record - is welcome. The sector seems to have little grasp of its past, present and future exposure and insurers have consistently failed to tag claims.

"I believe the most sensible method for calculating asbestos exposures is to conduct a detailed actuarial analysis," says Bryan Joseph, an asbestos guru in the London market practice of PricewaterhouseCoopers. "To do so requires the insurer to have tagged asbestos-related claims, which people are beginning to do more of now for the purpose of reinsurance recoveries."

This article first appeared in the April 2002 edition of Reinsurance magazine.
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