innovative products, services, and delivery mechanisms to a limited
number of policyholders (or other clients) in a controlled environment
and for a limited period of time.
This regulatory support is fundamental to successful insurtech initiatives
and is even more important when we start to consider the impact that
blockchain—distributed ledger technology—may have. While many
steps that the insurance industry has taken on its digital journeys may
seem significant, these have been essential to innovation. Blockchain has
the potential to be truly disruptive and has some key characteristics that
make it ideally suited to transform the insurance industry.
Blockchain is a shared (distributed) and decentralised ledger,
which means you don’t have to rely on intermediaries to record and
track transactions or to maintain the integrity of the transaction data,
resulting in ‘one version of the truth’. It enables smart contracts which
self-execute predefined actions when specific conditions associated
with a given transaction are met. This creates the potential to take
leaps and not just incremental steps.
The decentralised nature of the technology gives the industry an
opportunity to truly transform the marketplace and create exchanges
bringing together risk and capital. This could facilitate efficient
placing, automate technical accounting, simplify the settlement process
and reduce friction in the claims process.
We have seen a number of initiatives in this space including the
Blockchain Insurance Industry Initiative (B3i) and ChainThat. B3i was
started in 2016 with a number of participants with a Bermuda presence
involved and they plan to launch their first product in 2020 which
will be targeted at the reinsurance market in the form of a catastrophe
excess of loss product.
ChainThat has developed a re/insurance risk and capital exchange
that aims to provide the benefits of an electronic exchange. It has
decided to take advantage of the Bermuda culture of innovation and
the BMA innovation hub to launch this initiative in Bermuda.
Previous initiatives to drive marketplace efficiencies haven’t been
successful and technology hasn’t been the root cause of this. The
appetite for collaboration has simply not been there. Through
industry consolidation we have seen various groups getting closer
to the customer with their acquisition strategies, and maybe
now is the time for technology to drive this—are we ready?
Brett Henshilwood is a risk advisory partner at Deloitte Bermuda.
He can be contacted at: email@example.com
“Digitise or die” is a phrase we are hearing with
increasing frequency in Bermuda. The re/
insurance industry has experienced years of
sustained pressure on profit margins, partly driven
by readily available capital that has been attracted to the sector at the
same time that incumbents are challenged with addressing the cost
impacts of manually intense operational processes.
More recently, new threats have emerged from the GAFAs—Google,
Apple, Facebook and Amazon—and other large technology-driven players
who have efficient delivery channels and understand the customer
experience in a way the re/insurance industry can only aspire to.
These challenges have resulted in a wave of insurtech initiatives
to remove friction in operational processes and enhance the customer
experience. Spending on insurtech nearly doubled between 2017 and
2018 to more than $4 billion, with the majority of this provided by
insurance companies. There is also a growing trend of insurance
companies working in partnership with technology companies,
indicating a spirit of collaboration not previously present.
Bermuda has been at the forefront of providing innovative solutions
in the re/insurance, insurance-linked securities (ILS) and captive
insurance markets. From a jurisdictional perspective, the Bermuda
market has the largest ILS and captives sectors in the world, and
contains one of the world’s largest reinsurance sectors.
Recent surveys by Deloitte have identified that regulatory issues
are one of the biggest hurdles to insurtech and innovation. We have
seen the Bermuda Monetary Authority (BMA) respond to this by
clearly recognising the growing importance of disruptive innovation
in the insurance and wider financial industry and the pivotal role that
innovation plays in promoting efficiency and enhancing competitiveness
in the market. The BMA is committed to the viability of the Bermuda
insurance market and is committed to providing a regulatory
environment that appropriately protects policyholders while, at the same
time, remaining conducive to technological innovations.
It is to this end that the BMA has launched its sandbox and
innovation hub, both initially targeted at insurtech companies.
The innovation hub is designed to act as a platform for
exchanging ideas and information where companies are not
yet prepared for proof of concept.
The sandbox is designed for companies that are ultimately
looking to become licensed insurance entities in Bermuda. It
will allow them to test new technologies and of offer “The decentralised nature of the technology gives the industry an opportunity to truly
transform the marketplace and create exchanges bringing together risk and capital.”
SHUTTERSTOCK / PHONLAMAI PHOTO