There was a time when a contracts specialist would only get sight of a reinsurance contract long after the underwriter and broker had finished their negotiations and the slip had been signed. In recent years though, particularly given the regulatory requirements for contract certainty, but also as the market looks at ever more complex risks, and terms and conditions come under increasing pressure, the role of the contracts specialist has moved from the back office to the front line; sitting alongside the underwriter and working to make deals happen.
Contract certainty is not contract quality
The reinsurance contract is the basis of all reinsurance transactions and the failure to produce a well drafted reinsurance contract may lead to expensive litigation and commercial damage for the underwriter and broker, as well as putting a strain on relationships with the client. Having addressed the need for the efficient delivery of the reinsurance product, we must continue to focus on the quality of the contract.
Getting that right in a competitive market and prior to inception is why we, as a contracts specialist team, now work up front and centre with the underwriter at the placement stage.
The vast majority of contracts we see have been drafted by the client’s broker. We’ll review the contract and discuss with our underwriters what has changed on the risk if it’s a renewal on an expiring risk for example, and also make sure that we, as a business, fully understand the terms and conditions.
More an advisory role
It is now much more of an advisory role and becoming ever more important as the industry underwrites new and emerging risks such as cyber. Given cyber is a relatively untested class of business with few losses, arriving at the correct terminology is a challenge. For instance, how exactly do you define a loss event for cyber? It will do no one any favours to wait until a cyber event happens before deciding exactly what a loss is. Lingering uncertainties around coverage may feel non-consequential in the absence of losses. But those tests are on the horizon and well thought through language will be in the best interests of all parties.
It’s not just new risks that need careful consideration; bundling of classes, centralised consolidated reinsurance purchasing, expansion of coverage, increasing complexity of programme structures, and the emergence of new territories with their own laws and regulations all require reinsurance contracts to accurately reflect the risk being assumed.
We’re here to help make deals happen
Given the increasing complexity, some would argue that contract specialists are simply there to scupper potential deals. We don’t think this is the case; we’re there to help make a deal happen when the broker and the underwriter are otherwise struggling to agree terms. Brokers for example have often welcomed our involvement at the placement stage to ensure a reinsurance contract is properly and accurately drafted. After all, it is in no one’s interest for coverage to be blurred and ill-defined ahead of the ultimate test.