The Dawn of Data First (not Documents)?

Marsh, Howden and Whitespace point the way to a truly digital speciality market.

In July 2022 InsTech we at InsTech published a report called Marketplaces and Exchanges – 10 ways they are re-shaping insurance. In it we observed that “it is difficult now to ever envisage one single exchange or handful of exchanges in the middle of the global risk ecosystem on which every stakeholder is willing to play. Instead, the insurance industry is going to have to confront the fact that there are and will continue to be a myriad of marketplaces. … each seeking to tackle different industry issues and apply new techniques, technologies and models”.

The report went on to observe that “This creates a new challenge for the specialty market. For a decade or two most of the industry has assumed that market forces and/or the dominant industry players would take responsibility for creating a trading solution that fulfilled market needs. There was therefore no need to do anything proactive - the strategy of choice was to do nothing and wait for the solution to emerge, safe in the knowledge that your company alone could not make it. This is no longer a safe assumption to make”.

On 20th February the Insurance Insider ran a piece with the news that " 达信 Specialty UK was set to close a deal with Whitespace to start placing live North American casualty risks on its e-placement platform as part of a broader digital trading strategy".?Other classes are set to follow" - this has since been confirmed publicly by Marsh itself.

The article goes on to say "It is part of a defined strategy pulled together under the new leadership of Anthony Siggers , Digital Leader of Marsh Speciality UK which sees smaller, less complex risks capable of auto pricing going through Marsh’s in-house e-trading platform, Intuitive which enables fully algorithmic trading.

?In what one assumes is a “horses for courses” approach with Marsh using whichever trading platform it believes best suited to each class of business, the recently announced PPL’s Next Gen platform migration plans has Marsh and Guy Carpenter chalked down to start using Next Gen for some classes in September".?

This is an important moment in time not least because it’s the first time in over 20 years that Marsh have made such a public declaration of their support for a third-party marketplace provider or indicated such a clear direction of travel on how it intends to transact specialty business in the future.

There are several other ways this development changes the landscape and provides some pointers as to who the winners and losers in the long term will be.

WINNERS

?Whitespace

Clearly the main winner from the Marsh announcement is Whitespace. It already had healthy traction with over 170 firms trading customers centred on the London but including some from further afield in continental Europe and the US. There has been a recent pilot in the Belgian Marine Market which in turn, has generated interest from France and Germany as well as Dubai and Singapore.

Perhaps the real significance of Marsh’s decision lies not in the fact that it is massive customer won, but that it is validation of some key strategic decisions made three years ago by the Whitespace leadership to make it a data and API first platform and to design and invest accordingly.

?Verisk

Another winner is Verisk, the owner of Whitespace since 2021. The financial strength and investment support that Verisk provides not just credibility, but global reach, opportunities, and access to wider ecosystem of products and data sets for the speciality market.

?The toolset of services acquired over the past 5 years that combines of Rulebook (acquired in December 2018) along with Whitespace (acquired in March 2021) appears to be paying off especially when you consider that given that Marsh’s algorithmic trading arm, Intuitive - which we mentioned earlier – is also powered by Rulebook.

Others with Defined Data First Digital Trading Strategies

As we observed in the last report, Marsh are not the only brokers building their own marketplace-like platforms that enable them to provide their customers with a genuine digital trading capability as well as transact digitally with their capacity providers.

?In most cases, brokers are doing this because they were believers in the data first model and have lost confidence in the market wide ability to deliver a suitable solution. Howden is a broker who has taken this approach. It owns xTrade Cargo and Tepfin X and is well-advanced with plans to launch additional marketplaces for aviation, renewable energy and delegated underwriting. Like Marsh they’re spreading their bets by looking to place North American property risks on Whitespace. The risks are set up in the Howden administration system and then pushed to Whitespace using pre-configured templates on Whitespace and a system-to-system integration.

?Marsh and Howden, both from the progressive end of the broker spectrum, have a similar approach which, if we have interpreted it correctly, is to go with a proprietary platform and a truly data first, even algorithmic approach on classes which lend themselves to that path. When they don’t, build the internal capability to create risk details and contracts internally that can be pushed to third party trading platforms best suited for trading that class on a data first basis. Picking "horses for courses" and waiting for the winners to emerge through Darwinian forces.

Middleware providers

Even though it has been possible to digitally exchange data between counter parties for a while now there have been precious few real examples of true system to system integration in the speciality world. This is because:

·??????insurance has no infrastructure or rails to connect to

·??????the preponderance of legacy technology

·??????the reliance on documents at the expense of data

·??????the paucity of data standards and protocols to work with

?The data first approach favoured by Marsh and Howden with Whitespace and by their new broker owned exchanges will help us deal with the last two of these issues. Many incumbents are also investing in new technology or in ways to make their legacy technology easier to link up to. Now we just need better rails and infrastructure. If brokers are going to have to integrate to lots of exchanges and carriers accept risks from lots of different sources, then there’s a huge integration challenge ahead. It is massive opportunity for third party providers. In no time at all the speciality market will be crying out not just for outsourced integration services, but the rails and infrastructure that will provide the capability to integrate once and get access to multiple parties. This will be the subject of another article to be published in the summer. If there are any entrepreneurs or suppliers with solutions or prospective solutions for this issue, please get in touch – I would love to include you in a deeper analysis of the opportunity and how it is being approached.

?LOSERS

The “NextGen” Placing Platform (PPL).

The fact that its release has been delayed several times has clearly undermined market confidence and reviews of those who have trialled or used the new platform are mixed. But there is more to it than that. Marsh and Howden see the future of specialty insurance as data driven and not document centric. Their proprietary platforms and their engagement with Whitespace are because they believe wherever feasible in data driven trading. They want to move on from the exchange of pdfs and unstructured data which must be identified and extracted. Sure, PPL NextGen will have an inbuilt capability to extract data from documents, but that approach feels more this generation than next generation. The amounts invested in PPL over the years is probably several hundred million pounds – that’s a lot for an exchange that is likely to end up as one of several trading solutions.

Deloitte

The consulting firm is not the first to underestimate the complexities of building a trading platform for specialty business with its unique set of process, limited data standards and reliance on documents with near infinite different formats. But what galls the market more than this misjudgement is that they were retained to assess the work of first choice NextGen developer, CGI, and presumably advised that the market could do better. They then backed themselves to take over the reins and presumably have derived considerable revenue from doing so. In those circumstances, you must deliver the right thing and on time and to budget and despite the vast amount of money that the market has sent their way they didn’t.

In football parlance – it’s like being a TV pundit watching the game and assessing a team and its tactics and being critical of it. If you believe you could do a better job and take on the management and then don't make a mess of it. It's known as "doing a Gary Neville".

Ebix Europe

The Insurance Insider story also suggested that Ebix, which provides the current technology for PPL’s existing platform, is preparing for the launch of its own platform, Placing Hub.?Surely it is too little too late. Ebix have run the PPL (or the technology that it runs on) for much of the time since 2014. The market has enough experience of how it manages market trading technology and its approach to upgrades and modernisation. It will no doubt take account of that in assessing the merits of Placing Hub.

WHAT NEXT?

All eyes on Aon

Aon was the first of the major brokers to institutionally commit to e-trading of specialty risk back in 2003, but without support from any other major source of liquidity the initiative failed. Since then, they have been reluctant to take the lead again. It will be interesting to see what they do next for two reasons:

• if they also go with a data first approach, which we would expect them to do, then that should be enough to tip the market towards a true digital future.
• if they too choose Whitespace, then that would be enough to make that the winning play and for there to be further consolidation on it.

Digital First for Delegated Underwriting?

Delegated Underwriting is another segment of the specialist insurance market that has spent 20 years grappling with concept of data first. In this case the data is not transferred between parties in documents, but spreadsheets with most of the other counter-parties having some kind of spreadsheet management software to validate and extract data.

The end game is of course data in a digital format at source and to keep it that way. That has been the ambition for a while now with no obvious sign of a breakthrough. This may be wishful thinking, but there’s a chance that the Marsh and Howden move to data first on transacting complex business might be a catalyst for another push for data first on delegated underwriting too.

Conclusion

I am too long in the tooth to get over excited about a single announcement - even one about Marsh/Whitespace announcement, but it is encouraging. The pandemic was a boon for digital trading as it forced a lot of businesses to find a digital channel to transact business, but that momentum has been dwindling away. What I do believe is that two of the most progressive brokers in the speciality space have gone public with clear a direction of travel and renewed commitment to transacting truly digitally with data, not documents.

These latest developments feel like much needed good news after a reasonably torpid spell. And like a football manager commenting on a much-needed win after a bad run of form, I’d be telling the reporters the same three things "take the positives from the game," "one game at a time" and "start preparing for the game next week." If it is good enough for Juergen Klopp it is good enough for me.

? Helen Christopher FCIM Chartered Marketer Anthony Siggers Adam Kemmis Betty Tom Goulston Tim Rayner Richard Smith CCRA Reid Stanway Ian Summers Ian Meadows Daniel Prince Paul Hillier Lee Timms Marcus Broome Mark Geoghegan Daren Rudd ?? Hugh Choudhury Paolo Cuomo