The blog primarily discussed the Basic idea about reinsurance. Further, it highlights the risks associated with reinsurance and mitigation of risk. Reinsurance is a module included in SAP insurance business process. Additionally, it focuses on the complete solution of SAP FS-RI including Basic system, Prognosis and estimation and Loss. Finally, it recommends reinsurers who do not have SAP FS-RI, to adopt and automate their business and enjoy more profits.
Insuring the insurer is called Reinsurance. SAP provides complete ERP solution for reinsurance, FS-RI. Multiple SAP Consulting companies provide implementation and support for FS-RI. The following blog covers the basic idea about Reinsurance, how SAP insurance solution, FS-RI, provides answers to the requirements of reinsurance industry, overview of FS-RI and the final words. FS-RI is the complete ERP solution that can automate your reinsurance business and help in earning more profits.
Basic Idea about reinsurance
What is reinsurance? Insurance is based on risks. When we have a risk we transfer our risk to the insurance company. When all the risks are combined, they form a bigger risk. What happens if insurance company has accrued big risk and wants to transfer? There is an option to transfer some parts of the risk to other entity. The transfer is called Reinsurance and the entity is called Reinsurer. The insurer cedes (transfer) the risk to Reinsurer.
Reinsurance and SAP
Reinsurance is a module included in SAP insurance business process. Reinsurance is a sector not much explored by the ERP providers. Reinsurance is a part of insurance but much more complicated than insurance. It has all the components of insurance plus few of its own like treaty, policy, premiums, claims, accounting and risk management. Why we use ERP? Usually a company uses multiple systems to automate the process but they do not have interaction with each other. ERP solves the problem of interaction between multiple systems by giving the complete solution in one system. SAP is the world’s leading provider of the ERP systems. SAP for insurance is the industry specific solution. For reinsurance, SAP Insurance has FS-RI module. It is a complete solution for reinsurance industry. FS-RI is a self contained system. It can manage your treaties/policies, accounts for the treaties/policies, brokers, claims for the treaties/policies and even the retrocession. FS-RI is capable of calculation of the claims to be paid, receivable premium, brokerage and other accounting details.
SAP FS-RI – The complete solution
There are multiple key features of FS-RI that make it stand out of line of various ERP solutions.
Basic system covers Treaty where relationship is mapped between various partners in the reinsurance and insurance business. Both life and non life reinsurances are covered by the treaties with specific information to the class of business. Treaty can be classified by category (assumed, ceded, retrocession, portfolio etc.), nature (proportional, non proportional, facultative, obligatory etc.) and type (quota share, surplus, stop loss etc.). Broker and partner details can be managed in the treaty. Conditions for calculating no claim bonus, expenses, brokerage, premiums, percentage of claims, share etc can be defined in the treaties. The accounts for the treaty are managed in basic system itself. The accounts are posted to the FS-CD (Collection and Disbursement) module of SAP, which is responsible for the accounts management and clearing for various SAP modules. Release of payments is controlled by FS-CD module.
Prognosis and estimation accounts can also be maintained for treaty relationship. Sometimes an estimate is needed to be maintained but the value of the estimate has to offset against some accounts after actual accounts are posted. For estimation a reversal account is created even if the final account for the treaty is not posted. Reversal means system itself creates an offset posting for the treaty which is cleared when the final account is generated.
For managing single risk, policies are used and covered in Risk Manager. Some risks are too big to be included in a treaty or bundle of treaties so a separate policy is created for such risks. Risk manager is a module used in FS-RI system. It cannot be used separately as the policies that are defined in the Risk manager are connected to Assumed Master Treaty or treaties in the Basic System. The accounts in Risk Manager cannot be directly posted to some accounting system rather they are posted to the accounts in Basic system which are than posted to accounts receivable/payable system.
Risk manager, Basic system Relationship
Loss covers the claims made on treaties and policies. If there are cases of catastrophes, Loss is able to handle the details of start and end date of catastrophe and calculate claim accordingly. The reserves are maintained in the treaty and policy itself so whenever the accounts are posted the reserved are reduced. Loss is designed to handle multiple currencies.
FS-RI and FS-CD Relationship
There are times when the screen customizing is required; Extension Services can be used to tailor the FS-RI system according to the requirement. Every screen in the Reinsurance is customizable using the extension service. Once the customization is done, it can be activated or deactivated according to the requirement.
SAP FS-RI is the complete ERP solution for the reinsurance industry. It covers all the basic and complex requirements of the reinsurance business including treaties, policies, accounts, claims, partners and calculation logics. It is flexible as it can be customized according to the customer’s needs. There are various background jobs for accounts, treaties, risk manager etc. that can optimize resources. With background processing one can schedule long running and resource intensive programs, when the system load is low. Multiple reports can be run to get an overview of the current business specific to treaties, policies, accounts, business partners and loss. There are various Reinsurance companies that have already installed FS-RI from SAP and are enjoying the complete, optimized solution. For those reinsurers who do not have SAP FS-RI, now is the time to automate your business and enjoy more profits.
Author – Apoorv Lohani