Bermuda will succeed by developing e-commerce in tandem with its established expertise in (re)insurance. Claire Green, who has just completed a research project on the subject, explains.
With Bermuda's strong reputations for innovation and entrepreneurship in the development of insurance and reinsurance business, it is perhaps surprising that more has not been written or expounded about the impact of electronic commerce in and through the island. Partly this has been because of the confusion resulting from the hype which has led to strange projects being categorised as “e-commerce” and partly because in reality, there are few examples currently in working order that can be used as “role” models to define what e-commerce in the insurance and reinsurance markets of Bermuda actually means.The first step then, has to be to develop an understanding of why and how Bermuda should utilise developments in this technology arena to enhance existing business services and industries. To date, discussion surrounding this topic has emphasised the favourable tax climate of Bermuda as the major driver attracting new (re)insurance business to the island. However, while in certain instances there may be tax efficiencies, this theme should not of itself be considered a primary reason for locating e-commerce initiatives in and through Bermuda. Instead, the advantages of an offshore site should be considered alongside the many other benefits that Bermuda has to offer the global financial world.
Bermuda is widely accepted as a world leader in certain key areas - alternative risk markets, finite risk, high-level excess to name some of the most significant. This solid foundation provides an ideal platform upon which to build electronic commerce applications which can benefit the global (re)insurance industry.In this manner, the development of new technologies and integrating platforms will enhance the industry infrastructure, and this allows Bermuda to distinguish itself from other domiciles where technological developments have been the focus rather than part of a holistic approach to e-commerce development.
Bermuda has traditionally not played heavily in the primary markets. While worker's compensation accounts for approximately 60% of the captive business of Bermuda in e-commerce terms, there is, in effect, one transaction per month. This offers little real potential for exploitation and expansion and, hence, online developments in this area are unlikely to show a reasonable return on investment. Other lines such as product liability, typically come from homogenous groups or trade associations where there is little need for electronic integration and distribution technology type applications.
However, the story is different in the reinsurance and broking sectors, where file transfers, policy wordings, claims information, database central facilities, settlement transactions and so forth benefit from the cost-effectiveness of e-commerce. In this sense then, Bermuda is likely to see solid returns from investment in the development of electronic commerce applications in the reinsurance and broking industries.
Moreover, the use of such technologies to conduct and settle financial business electronically cross-border will significantly enhance the major sectors of Bermuda financial community. In this respect, The Bank of Bermuda is a pioneer - one of the leading banks in the world for secure online settlement procedures. Only two major international banks are also able to offer the same full service of secure online settlements and an impressive multi-currency facility.
Apart from the evident benefits that will accrue to existing businesses, such developments will help to create new niche markets for the island. For example, Bermuda could look to develop itself as a domicile for significant amounts of international life business. Traditionally, discussion on this topic would have focused solely on the tax issues thereof, but in the evolving world, the emphasis is much more heavily biased toward working applications and the necessary enabling technologies to facilitate administration of such business - within a favourable tax climate.
What stands in the way of electronic commerce developments in Bermuda? Typically, the response nods towards the telecommunications industry, where a monopoly status for many years fixed prices at an uncompetitive high. Today, however, the industry has deregulated, and the ability to provide world class telecommunications at a reasonable rate is now a reality. There are still unsettled issues in this area, which will inevitably take time and slow the development of Bermuda as an electronic commerce hub. However, Bermuda's leading position in insurance places it strategically well ahead of competing domiciles who must continue to upgrade their telecommunications plus build their insurance infrastructure.
Bermuda, therefore, must promote itself as a holistic domicile - able to offer significant business benefits to the global community, while utilising the best in technological developments to stay one step ahead of the competition.
Claire Green is group managing director of William R. Storie & Co Ltd, a Bermuda consultancy specialising in finance, insurance and technology and the publisher of the electronic newsletter Berbiz. E-mail: www.wrsl.com