Hong Kong startup aims to bring commercial insurance into the digital age

An attempt to develop a digital insurance risk exchange is set to be launched later this month, which aims to bring some much-needed innovation to the corporate insurance market and promises to do for commercial risk managers what the Big Bang did for the London Stock Exchange. The Hong Kong-based initiative, known as irX, also hopes to drastically cut the huge costs currently hampering the general insurance market, by removing many of the manual processes involved in insurance placement and syndication. According to the irX executive team, the system will allow risk managers or their brokers to create submissions for particular risks and then request and receive quotes before picking successful insurers. Brokers and insurers will then be able to trade the primary insurance risk to the insurers or reinsurers, as well as collect and distribute premiums through the 100% digital platform. Meanwhile, the whole process will be visible to the risk manager or end client, who will also have to provide sign-off at every stage. Should the platform prove to be successful, it would provide risk managers with an answer to some of their biggest complaints – from the late issuance of policy documents to the lack of transparency in transactions. While technology has helped to revolutionise the securities market, banking and even parts of the retail insurance market, the commercial insurance world has remained frustratingly devoid of development or innovation. Consequently, irX chief executive Roger Durn believes that it is a market ripe for disruption. “The commercial insurance market is the only one I have seen where the client is treated so badly by some brokers and intermediaries,” said Mr Durn. “$100m of cover and all they get is a spreadsheet and a policy after the event has occurred.” But it is not just the risk managers that are not satisfied. “In the current market there is a lot of friction between the insurers and the brokers, with the former trying to disintermediate the latter and each blaming the other for pushing up the price of insurance. The reinsurer’s view is similar. None of them are happy,” added Mr Durn. Premiums have been driven down by competition and capacity but the biggest problem is the lack of innovation and new products and new services, said Mr Durn. “This is because the market is not electronic. How can you have terrorism or cyber insurance policies based on an annual renewal? If the market was electronic, you could turn these things round in a month, a week or even a day. There would be new options for the client all the time. A more digital world would lead to more innovation as well as a more efficient market,” he explained. Insurers often complain that commercial clients are underinsured. Well, offer them better products, said Mr Durn. He cited the fact that the last great product innovation was D&O insurance, if you assume that the jury is still out on cyber insurance. But with a fully digital model for insurance placement and transactions, greater product development would be much easier to achieve, said Mr Durn. “You can only truly innovate when you do everything electronically and are able to strip out that excess cost.” Unnecessary expense is the other big issue for the insurance market and another one that irX hopes to solve, said Mr Durn. It is an issue that has been highlighted by a number of leading players, including Lloyd’s CEO Inga Beale who, in Hong Kong earlier this year, bemoaned the fact that 41c of every premium dollar is not spent on supporting the insurance coverage but on operations and commissions. She also stressed the need for cost reduction, increased efficiency and modernisation in her half-year letter to employees and the Lloyd’s of London market. Some of these costs are down to outdated systems and architecture, as well as what are seen as unsustainable commissions and fees from brokers – an issue highlighted earlier this year by Evan Greenberg, chief executive of Chubb, who spoke out about brokers’ abusive behaviour, excessive commissions and a likely backlash form customers and regulators. Mr Durn believes that his platform can help to solve all of these issues. “What we focus on, is changing the process, making it much better and making the whole activity digital with a single source of data, and seamless, and strip out the need for unnecessary people and archaic processes. This is what we have built and have now started trialling with potential members.” The platform is targeting insurance clients with annual insurance cover in excess of $100m, as well as brokers, insurers and underwriters, service providers and regulators. At present, there is no regulation for this kind of platform or activity anywhere in the world but, said Mr Durn, it should be welcomed by supervisors given the electronic and transparent nature of the system. “The compliance aspect is very simple because everyone can see all the data they need and this should also bring compliance costs down,” he explained. The system features leaders (the main insurer setting the price) and followers (insurers providing capacity). Clients are able to ask for open and closed bids and to structure their offering the way they want, with all the necessary documentation. The next stage is to develop the platform for the collection and distribution of premiums and claims. irX is working with an international clearing house on developing the capability. Blockchain technology and the use of smart contracts will also be a key component of the platform’s development, said Mr Durn, particularly in relation to the transactional side and as it moves beyond the primary trading of insurance to include trading analytics, an interface for payment and renewal triggers, and post-trade ledger for reinsurance. Of course, irX is not the only venture out there looking to use blockchain and other new technology to offer insurers and insurance buyers a new way of doing business. InsureX in the UK is a blockchain-based platform hoping to become an alternative marketplace for insurance, which is set to launch in the last quarter of 2017. Meanwhile, ReLeague is a digital platform being designed for the reinsurance industry by ex-Guy Carpenter executive Andrew Harris. But Mr Durn said the stiffest competition comes from the manual legacy of the insurance industry and its reticence to embrace change, as well as the large brokers or insurers that will look to develop their own platforms. However, ultimately clients want a platform with multiple providers in one place rather than having to access several single insurer or broker platforms in order to interact with the market. Lots of people have tried and failed to generate alternative or electronic insurance marketplaces, but the irX team believes the industry is facing a perfect storm thanks a neverending soft market, unsustainable operating expenses, an insatiable demand for new products, and rapidly advancing technology like Blockchain. “Some people think that it will take ten years or more to create this kind of digital marketplace but I think the commercial insurance market is much further along than people think, and we can achieve this transformation in less than two years,” said David Piesse, chairman of the International Insurance Society Ambassadors and a blockchain evangelist advising irX.

Hong Kong startup aims to bring commercial insurance into the digital age

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