Reinsurance has not been passed by in the e-revolution.
E-commerce remains the watchword of progress, despite the recent fall from grace of technology stocks. Like previous industrial revolutions, the e-volution has had many drop by the wayside, but as the dust settles, the way ahead for business processes becomes clear.
Talk around the reinsurance market, and many will question the relevance of e-commerce methodologies for the business. It's about complex risks and negotiations, it's about trusted relationships, it's about bespoke deals, not commoditised trading, they say. These are all true, of course. But reinsurance is also about information exchange and negotiations, and it is on these sides that internet technology can make in-roads.
Estimated at $120bn, the reinsurance industry traditionally has been reticent in adopting technology, calling on its ‘human touch' as a reason for maintaining traditional business processes. But the human touch has proved itself inefficient and unreliable for reinsurers, and there is a general recognition that transaction costs, estimated at $13bn or more, need to be cut.
“The industry can use the internet as a relatively inexpensive means of communication,” said Igor Best-Devereux, CEO of reinsurance trading platform, ereinsure. Based in Salt Lake City, Utah, ereinsure is delivered through an application services provider, so it can be accessed by any internet browser pointed to www.ereinsure.com. “Our approach provides members with new levels of efficiency, convenience and flexibility in the reinsurance negotiation process, delivering clear and measurable cost and time efficiencies across the industry,” he commented at February's launch of ereinsure, adding that reinsurance costs need eventually to reduce to around 1%. “The ereinsure platform allows our customers to significantly reduce transaction costs and better manage their business with a central location for conducting negotiations.”
Although ereinsure has a $2.5m investment from Chubb Corp representing about 20% of the ereinsure stock, Mr Best-Devereux insisted it is a neutral platform, independent of any specific market player. Chubb is “a great supporter,” he said, but does not have a controlling interest in the business. “Ereinsure is not a reinsurer or an intermediary,” he said. “We are purely providing a technology platform.”
As a trading platform, ereinsure is surprisingly familiar to reinsurance practitioners, and kicks against many of the arguments brought up against the use of technology in the sector. For example, there has always been the spectre of ‘disintermediation' hanging over the heads of brokers with the adoption of e-commerce. Not so, said Mr Best-Devereux. “Brokers are a key distribution channel in the market. Disintermediation is not the case because they bring value to the relationship.” Brokers can post risks onto ereinsure in exactly the same way as cedents, he explained. “Ereinsure is not delivering a fixed way of doing business. We have tried to recognise traditional market practices in the way it works,” while at the same time, the trapping of information centrally enables detailed management information to be produced quickly and efficiently.
Using ereinsure couldn't be easier, and its design does, indeed, replicate transaction methodologies in the reinsurance sector. Information is entered onto templates, which are a blend of fixed fields and free text areas. At the same time, attachments of all types can be added to the template to provide further information on the risk.
Once the information is entered and checked, the cedent can then choose whether to go to an open market with the risk or select specific reinsurers to look at the business. This provides a negotiation facility as opposed to the auction nature of more conventional internet trading platforms, where the price rather than the detail of the transaction is the point of discussion.
Interested reinsurers can respond with requests for more information, clarification or other queries, and thus the back and forth negotiations can continue. At the same time, all parts of the negotiation are tracked and stored within the ereinsure system, guaranteeing a full record of the transaction.
Internet security has long been a concern for the industry, and ereinsure tackles this by establishing full verification of a user's identification before allowing them access to the system. “It is important for both ereinsure and for negotiations between the companies that users know it's a legitimate party” trading on the system, said Mr Best-Devereux. “People in the market are sensitive to confidentiality – they need to be sure that the person they are dealing with really holds the pen.”