The Bermuda Insurance Regulatory Sandbox and other initiatives are helping to nurture some significant insurtech developments on the Island. Bermuda:Re+ILS explores what needs to happen next to ensure the sector’s success—and what it means for traditional players.
As one of the world’s leading reinsurance markets, Bermuda has always led the way when it comes to creating innovative products for risk-based solutions. Insurtech is part of that trend.
According to Jasmine DeSilva, business development manager for risk and insurance solutions at the Bermuda Business Development Agency (BDA), the primary focus to date has been on the implementation of systems that mitigate inefficiencies and lower expenses.
"Building solutions where regulation is willing to work alongside you is a clear jurisdictional advantage.” Kathleen Faries, chair of ILS Bermuda.
“We have seen some of the big players providing seed capital to emerging technology,” she adds.
The majority of the BDA’s stakeholders are looking at how new technologies such as blockchain and artificial intelligence (AI) can transform the back office by processing data more efficiently and improving the accuracy of risk management, DeSilva says.
“Up to this point, companies have viewed certain advancements as ‘nice to haves’ and we haven’t yet seen a move towards mass adoption, but the insurtech market is maturing and you would expect this to grow in the coming years,” she explains.
“Given the current measures being taken to mitigate the effects of the coronavirus outbreak, firms are having to embrace new working arrangements and implement business continuity plans using technology.
“It will be interesting to see how this influences the conversations around insurtech initiatives, such as electronic trading and digital platforms.”
Kathleen Faries, chair of ILS Bermuda, paints a similar picture.
“The main focus so far for Bermudian reinsurers has been looking at insurtech for ways to improve current processes,” she says. “They are also exploring how they can do things differently or simply investing in startups that may have an impact in the future.
“Much of what has been impactful to date in the insurtech space has been on the front end of the insurance value chain,” says Faries.
“There has been real progress on customer experience in the retail space. Insurers are bringing the purchase of insurance into the digital age, resulting in speed and ease of use for the buyer.”
In addition, she notes, insurers are accumulating more data for their own consumption through technological advances such as sensors and drones.
“To gain real efficiencies and added value across the entire chain of risk transfer, we need to move to a holistic, unified architecture to move data from risk originator to risk taker,” she says.
“We need a market utility for moving risk data in order to leverage the value of technology across the industry. The value of our industry is in our ability to distribute risk globally; we need to build solutions that reduce the friction and cost involved in that distribution.”
Developments in Bermuda
When it comes to the global reinsurance market, the pace of technological change has been a challenge. The regulatory environment does not always provide the flexibility needed for the industry to keep up.
In Bermuda, the government and the financial services regulator, the Bermuda Monetary Authority (BMA), recognised and acted on the importance of enabling innovation. The Insurance Amendment Act 2018 paved the way for the BMA to create an Insurance Regulatory Sandbox (and innovation hub) to facilitate and promote experimental and innovative applications of technology in the insurance sector.
“The Sandbox creates a live environment where new technologies can be tested by a licensed insurer or licensed insurance intermediary to a limited number of clients in a controlled way,” says DeSilva.
“Participating in the Sandbox has several benefits, one of the most valuable being the insight provided by the BMA from the outset, in terms of giving real-time feedback and ensuring regulatory compliance, which ultimately facilitates speed to market with more traction and momentum.”
Faries agrees. “The Sandbox is a valuable resource for companies that are interested in doing things differently, and for initiatives that currently don’t fit into the regulatory classes or framework we currently operate under in Bermuda,” she says.
AkinovA, the electronic marketplace for trading re/insurance risk, is a great example of this process, Faries adds.
“As a result of the interaction and discussions between AkinovA and the Bermuda regulator, a new regulatory framework/class was developed, clarifying how a ‘platform’ would be regulated going forward.
“This makes way for others to look to Bermuda if they are building platform solutions for the industry. Building solutions where regulation is willing to work alongside you is a clear jurisdictional advantage.”
Henri Winand, chief executive officer of AkinovA, sees the Bermuda Sandbox as a “compelling proposition where insurtechs can deploy their offering with the right supervision and with a regulator keen to help and develop the next generation of insurtech businesses capable of partnering with the more traditional players”.
Impact on traditional players
In Winand’s view, the best insurtech fosters an ecosystem and partnership approach. One of the main opportunities insurtech presents is the ability to test different technologies faster without disruption to core operations.
“The real prize is for the traditional players who are able to capitalise on faster innovation and tech cycles outside of their organisations,” he says.
DeSilva agrees that insurtech presents an opportunity to traditional players rather than a threat.
“It is fair to say the reinsurance industry as a whole has some catching up to do and historically it has been slow to adopt new technology, particularly if you look at what has happened in banking and the financial services sector,” she says.
“I’m sure there have been some concerns by some that insurtech initiatives would displace traditional players, but there are signs of change and there is now a broader recognition that leveraging technology to conduct business will inevitably aid in their longevity in the global marketplace.”
As in other industries, companies that don’t adapt to the business environment and meet the rapidly evolving needs of their clients will inevitably be left behind, DeSilva adds.
Winand highlights a number of challenges facing the companies venturing into this arena. They need to achieve staying power and partner with much large organisations right across a range of industries and disciplines, he says, to understand regulatory frameworks, access data and, crucially, access the required capital to move forward.
Looking to the future, Faries expects that the management and analysis of data will continue to evolve due to the huge volumes of data companies have the ability to accumulate.
“Without good data management architecture, the data is useless,” she says.
“Companies will continue to grapple with how to manage and leverage data. I am optimistic that with broker consolidation we may have an opportunity to start to advance our collective thinking around the concept of a market utility to move risk.
“The cost and inefficiency of our global distribution model continues to be an impediment in reducing the protection gap and encouraging more product innovation.”
Jasmine DeSilva, Bermuda Business Development Agency, BDA, Kathleen Faries, ILS Bermuda, Henri Winand, AkinovA