“We are delighted to be unveiling this exchange that will cut frictional costs and allow brokers, reinsurance and insurance companies access to the capital markets using blockchain,” said David Edwards, Chief Executive Officer of ChainThat. “This is an opportunity for Bermuda to establish itself as the most advanced insurance market in the world.”
The platform will roll out in two phases. The initial stage will involve a more traditional insurance market similar to Lloyd’s. Hence that involves placement, settlement, accounting and claims.
The second stage will support the same process for Insurance-Linked Securities (ILS), which enable reinsurers to repackage and sell some of their risks. According to ChainThat, Bermuda is home to 75% of the world’s ILS issuance.
We asked Edwards whether ILS would be restricted to reinsurers. “The way we have designed the exchange is not to dictate business models on who can access what, but to support the processes and data needed. I don’t see the capital markets aspect being restricted in any way but it will be up to the participating companies how they would like to access capital.”
The significance is that potentially insurers could package their risks as ILS, sidestepping reinsurers.
“The exchange will enable the existing market participant businesses, brokers and risk carriers, to develop and market new competitive products and extend their distribution reach like never before,” said Rebecca Oliver, Business Development Director, ChainThat.
She added: “Cost control and innovation are the two big issues that are being discussed in insurance board rooms around the world. By automating the current operational framework, we believe the Bermuda Insurance Exchange provides the insurance and reinsurance market with the opportunity to both maintain margins while reducing pricing to the insured. In turn, this will increase business performance and global competitiveness.”
ChainThat was founded in October 2015 by a team with deep technology experience in the London market. It developed a placement platform some time ago and planned to offer it to the Lloyd’s market, but the timing wasn’t right.
Ledger Insights spoke to David Edwards a year ago when he told Ledger Insights that they had “created a placement platform following the ACORD processes and data standards. At that point, we thought we have now created a decentralized placement platform that will solve a lot of the London market and potentially some of the global market’s issues.”
That sounds very similar to the Bermuda Insurance Exchange.
He continued: “But the London market had just invested multiple millions on a centralized placement platform. We understood that it would be very hard for a startup to sell a marketplace based solution because it would be hard to get a critical mass on board.”
But a year on, that’s precisely what ChainThat is doing. The question is what’s changed? “The marketplace has changed, we have been going to Bermuda for the last 8 months to better understand the community and opportunities,” said Richards.
“It very quickly became apparent that the way the insurance companies operate with each other, the drive of the government embracing insurtech/fintech/blockchain and the regulator support via the innovation hub, sandbox and digital asset legislation, that it is ideally suited for start-ups to establish the critical mass needed to make a solution like ours a success.”
Blockchain for insurance has come along way in the past twelve months. For starters, most of the major insurance initiatives switched to R3’s Corda technology, after ChainThat had already done so. And Corda offers the potential for interoperability with other Corda insurance networks.
The article has been updated with details about the ILS aspect and quotes from David Richards including re what’s changed.