I may find myself hounded across Leadenhall market for suggesting such an idea but is the ritual of brokers sitting outside an underwriter’s box, clutching stacks of insurance slips, about to be consigned to the history books? Could the process of matching the right risk to the right capital be done more effectively and efficiently?
Insurance risks come in many different shapes and sizes, and the insurance industry has specialised in assessing and providing bespoke solutions for over 300 years.
The reality is that not all risks are quite as ‘unique’ or ‘subjective’ as we may be led to believe. For the more homogenous and parametric risks, is it not time the insurance industry reviewed how it covers them by assessing its efficiency, transparency, and effectiveness?
Valued at around $100Tn, the global bond market is more than 20 times the size of the global insurance industry. The bond market is often perceived as opaque, old-fashioned and a slow-moving marketplace traded almost exclusively over the phone. Like insurance risks, bonds are also far from homogeneous, all having different sizes, credits, risks and protocols.
The surprising fact is that over the last 15 years, the bond market has begun to change its modus operandi and now (on a volume-weighted basis) 37% of global bonds are traded…………. electronically.
Third-party electronic marketplaces such as MarketAxess and Tradeweb have enabled this change by improving the efficiency of bond trading, reducing transaction costs and creating market liquidity, in what can be a very illiquid and stagnant marketplace. This has increased transparency and helped stimulate the overall growth of the market.
The insurance industry has certainly evolved since its inception in Lloyd’s coffee shop in 1686 but the risk transfer process has remained almost identical. Running at a net expense ratio of over 40%, the sad fact is the cost of doing business through the Lloyd’s marketplace is stifling business rather than encouraging growth. This is why the creation of a third party electronic marketplace for the transfer of re/insurance risks would help drive progress, create efficiencies and stimulate innovation across the market, benefiting the insurance industry as a whole.
Working with the insurance industry, AkinovA is building an electronic marketplace for the transfer and trading of re/insurance risks. By taking an inclusive approach, AkinovA is bringing together all parts of the insurance value chain to enable the creation of a truly electronic marketplace.