The individual circumstance surrounding a companies run-off will dictate the most appropriate allocation of either in-house staff, third party staff or a combination of both sources.

Once the business decision has been made to withdraw from either an individual line of business or to cease underwriting completely as an organisation, the next most important strategic decision is to determine the most effective structure to manage the run-off., says Rick Grant at Alan Gray.

The possible options to the above scenario are handling the business with current in house staff, outsourcing the work to a third party provider, or using selected in house staff and outsourcing the remainder of the processing. These factors must be considered so that a run-off structure can be created that will return the greatest economic value to the organisation.

It is important to have an understanding of the overall complexity and “past history” surrounding the book to be run off. For example, the number of years that were underwritten, the lines of business, the use and reliance on reinsurance, any previously advised claims or underwriting issues all must be evaluated in this process. At a minimum, a select number of the staff who know and understand the operating history should be retained. Once these key employees, or company historians, have been identified, the sufficient incentives required to retain that staff must be in place. Even though casualty books of business often do take numerous years to finalise, staff will be aware that the run-off will not go on for an indefinite period. Therefore, a specific retention program based on the performance of the runoff must be established. The incentives related to the retention program should be tied and measured against budgeted results and evaluated over a long enough periods that would enable certain goals/objectives to be achieved. Act in haste, repent at leisure

Within the run-off organisation, competent staff must be maintained in all areas, especially underwriting. Many companies in the past have moved too quickly to reduce or eliminate the underwriting function once the company is in run-off. Although premium flow will slow down and then cease within a short period of time, underwriting processing and issues will continue to surface. Underwriting should be an integral part of the companies run-off strategy, specifically with the auditing department. If a defined audit team did not exist prior to entering run-off, this area needs to be staffed immediately after entering run-off. A multi disciplined team consisting of claims, underwriting, accounting should formed an integrated into the planning process. Audits within a run -off scenario will take a much different form than the renewal audits that were preformed before entering run-off. Staff in the audit area can be drawn from either in-house or third party staff.

Key attributes to using third party outsourced staff is the overall flexibility in adapting to changing staff requirements and the potential efficiencies in handling like books of business. As companies move through the run-off cycle, third party staff can more effectively and efficiently assemble a staff to address the needs of the company. For property claims, this book will mature quickly and in many cases will require less than a full time position to handle that job. By handling similar books for various insurers or reinsurers, the third party outsourced staff can support and incorporate cost effective handling while the volume continues to decrease. In addition, certain leverage can be achieved when handling the same loss for various insureds, thereby representing a larger portion of the loss within the market.

The individual circumstance surrounding a companies run-off will dictate the most appropriate allocation of either in house staff, third party staff, and or a combination of both sources.

This Feature item appeared in issue 109 of JTW News - October 2006

Author: Rik Grant - Alan Gray