Small Dollar Collections

By John West

(Education Content Featured at March 2013 Membership Meeting)

“Small dollar collections,” the phrase on its own does not conjure up images of looming threats or dangers to the fiscal health of a company.  In fact, that is exactly what makes this topic worthy of more consideration and discussion.  When referred to in this way, there is an inherent sense that this category of reinsurance collections does not create a sense of immediacy. 

At the March 6 member’s meeting in New York, our panel presented this topic from multiple perspectives.  We first discussed certain aspects of this issue from the assumed and ceded perspective of both U.S. and UK companies.  We also integrated a conversation relating to dispute resolution, whether through legal means or those offered through alternative dispute resolution (ADR) options.  I hosted the panel.  Two of the panelists were Frank Kerhwald of Swiss Re and Paul Brockman, who is currently with Enstar.  Paul spoke more from the perspective gained in his experience at Equitas and Resolute Management.  Peter Scarpato of Conflict Resolved and Steven Schwartz from Locke Lord were on the panel as well speaking to ADR and legal alternatives for resolution, respectively.  

We first wanted to define what is meant by “small dollar collections.”  Our discussion led to the point that even though the phrase implied a lesser amount of funds outstanding by transaction in a certain category, the accumulation of those small transactions amounted to a substantial, if not a majority of the collection challenge overall. 

All companies can visualize reinsurance collections as a pyramid.  Smaller dollar transactions make up the base and larger transactions make up the tip: more small items with larger volume versus larger transactions with lower volume.

 Mr. Kerhwald and Mr. Brockman asserted that, from the company perspective, collections of both large and small balances are looked at with equal relevance to the overall pursuit.  There is as much energy expended by reinsurers as by cedents when dealing with small dollar payables/receivables.  Therefore, companies are more inclined to make a business decision to settle outstanding balances in order to clean up their books.

When disputes arise, or when consideration is given to utilizing a legal or ADR mechanism, Mr. Scarpato and Mr. Schwartz gave perspective about the reasonableness of cost associated with each and whether each mechanism afforded its own “value add” to the process of stimulating collections overall within certain markets.

 

Further discussion introduced the concepts of collections in foreign countries and an effective use of outsourcing to facilitate resolution.  Conversation on these topics also occurred in later panel presentations during the day. Cultural and distance challenges were considered with attention given to the UK, Asia and Central and South America.

It was determined that even though “small dollar collections” are not always seen with the same lens as large dollar items, they are addressed with the same urgency by cedents and reinsurers.  The methods of approaching them, however, may differ.

John West is Senior Vice President of Sales for HelixUK.  john.west@helixuk.com