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Hi-tech insurance exchange debuts in Bermuda

Technology revolution: Dave Edwards, CEO of ChainThat, which today will unveil what it believes is the insurance industry’s first distributed ledger technology risk and capital exchange (Photograph by Blaire Simmons)

A trailblazing use of blockchain in the insurance and reinsurance sector will be unveiled in Bermuda today.

There will be a demonstration of the Bermuda Insurance Exchange, which is described as the industry’s first distributed ledger technology risk and capital exchange.

A production trial will go live on the island in July. If all goes to plan it will bring savings and other efficiencies for brokers, cedants and insurers, and lead to a fully-fledged exchange.

“This is an opportunity for Bermuda to establish itself as the most advanced insurance market in the world,” David Edwards, chief executive officer of ChainThat, said.

He believes it could drive more business to Bermuda and grow the existing insurance and reinsurance market. If it succeeds, the company will look to have full-time staff on the island to support the exchange.

This afternoon’s invitation-only demonstration is being done in partnership with island-based technology company Fireminds. It has sparked a high degree of interest. About 80 businesspeople are expected to attend.

Mr Edwards said: “We had targeted 18 to 20, but when word got around the ‘Bermuda community effect’ meant more wanted to take part.”

ChainThat provides insurtech solutions. It is backed by Bermudian-registered consulting and managed services company Xceedance, with which it works strategically and operationally. It has its headquarters in London, and a team of 20 developers.

Mr Edwards is a regular visitor to the island, spreading interest in the development of the distributed ledger exchange, which uses the R3 Corda blockchain platform.

The exchange gives broker, reinsurance and insurance companies access to the capital markets using blockchain. It will allow the transfer of risk and capital between direct insureds, brokers, cedants and captive insurers and insurers, reinsurers, industry loss warranties and insurance-linked securities.

Mr Edwards said it will cut frictional costs, with potential savings of 30 per cent. He added: “Even if someone says they get 10 per cent, that’s still 10 per cent off the expense ratio, which can have a huge impact.”

Explaining the purpose of the production trial, which could have up to 20 companies involved, he said: “We have to prove this to them, and the only way to do so is for them to prove it for themselves.”

The exchange will be implemented in stages, initially providing the framework for a traditional reinsurance market, including placement, accounting, settlement and claims. The next stage will be the introduction of new capital, supporting the same processes for ILS and ILW.

Rebecca Oliver, business development director at ChainThat, said: “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.

“Cost control and innovation are the two big issues that are being discussed in insurance boardrooms 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 started using the R3 Corda platform two years ago. Mr Edwards praised its security and privacy elements, and said data on the distributed ledger is only shared with people involved in the same transaction, and on a “need-to-know” basis.

Going forward, Mr Edwards said the exchange will be focused on Bermuda, and he hopes the island will innovate and take advantage of its solutions.

“It is key that everything is done within Bermuda to start with. Once you have it established, then you can start to look at global footprints and other hubs.”

Mr Edwards mentioned the “Bermuda island effect” among the reasons why the exchange is being launched in Bermuda, rather than elsewhere, such as London, which also has a large insurance sector.

He noted Bermuda’s small size and the concentration of the insurance industry around Hamilton, where “people can just walk up to each other in the street and say we want to do this”.

He said: “Everyone is here, and that is why we have come to Bermuda. This is a place where there can be lots of expansion and new capital once this platform is up and running.”

It is hoped that between five and 20 companies, including brokers, cedants and reinsurers, will be involved in the production trial starting in July.

“We are ready to go now; some people are ready, some are not. So we said July, which gives time for others to get an understanding of the platform and figure out the ‘use cases’ they want to prove it on it. Then everybody can go at the same time.”

The trial is expected to last for six months. Mr Edwards said: “It is a production platform, so if people say ‘we’re ready’, the trial can stop for them and go into full production with their counterparties.”

A steering committee is being set up to assist with quantifying the success of the exchange. There will be key performance indicators for the initial use cases, such as on placement, accounting, settlement and claims.

“We have some accelerators to help [participants] build the business cases, and help them examine their processes. They need to understand their existing processes, so they can see the benefits of this at the same time.”

Mr Edwards said cost savings will depend on how deeply a participant integrates with the system.

“We have a phased approach. People can come on and just use the interface, access it, and export the data into their systems. Then we have the full API [application programming interface], the interface, to allow them to link their existing systems to it, so they can get right-through processing with their existing systems; that is where they are going to see the real value and savings.”

On the potential benefits for Bermuda, Mr Edwards said: “Hopefully it will drive new business to Bermuda. There are lots of businesses out there that would potentially look to put their reinsurance into Bermuda, but it can be a hard process today, especially for the smaller ones. The idea of giving them an efficient platform is that the products will have a much further reach from Bermuda, and go across the globe.”

He added: “If it is a success, it has potential to be big for Bermuda. I’m excited at the potential and how Bermuda can adopt it, both for the companies themselves and the Government. What the Premier is doing with his blockchain initiative, fintech, insurtech, and these new digital asset regulations, is really exciting.

“Who knows what Bermuda is going to look like in the next five years. It could be huge what is going on here.”

ChainThat has a website at https://www.chainthat.com/