Electronic Placement in Insurance: The Long Road to Data-First

The path towards electronic placement and broader data exchange has been a lengthy and challenging one for the large commercial re/insurance market, especially when compared to other sectors like banking and fintech.? Peter Smyth , Vice President of?Ebix Europe, sheds light on the obstacles encountered in the market and the growing sense of optimism surrounding electronic placement in the insurance industry.

The process of modernizing the market for large, complex commercial risks has not been as simple as it has been for other financial sectors or even personal lines insurance, mainly due to two distinctive features that set our market apart from most others.

The first is negotiation. In London, with its high density of highly-skilled insurance practitioners, face-to-face negotiation is absolutely embedded and, for the large part, essential practice in the transfer of the sorts of specialised risks for which the market is globally renowned. This is not easy to do over email and remote communications; Teams and Zoom helped out immeasurably during the pandemic but there is really no substitute for sitting several highly skilled people in a room, closing the door and letting them negotiate, innovate and create solutions.

It is this issue that dogged electronic placement initiatives for 30 years. Practitioners were fearful that trading systems might invalidate face-to-face and compromise their jobs. While this was emphatically never the case, practitioner resistance persisted all the way through until the pandemic which proved quite comprehensively that those concerns were largely unfounded. And here we are today with some 20,000 users conducting over 200,000 risk placements a year.

The second is data. Historically, it was deemed sufficient for a London underwriter to write a risk on the scantest of information from the broker and they recorded even less of it in their underwriting systems. And, quite often, that turned out to be a rather bad idea. Not so now – the advent of data, big data, analytics, AI, exposure management and all manner of other insurance technology is needed…..but it’s not that straight forward.

In banking and securities trading, for example, even the most complex of financial instruments consist essentially of just a series of debits and credits and each one of those needs a very simple data set – the parties’ accounts, some dates, amounts and currencies, and that’s pretty much it.

Not so with complex insurance which needs multiple data elements describing all manner of different insurable assets, not to mention the reams of textual information and, these days, multimedia, supporting the data for the risk or claim. This is nowhere near as simple to digitise and getting the data in the first place is not so easy either as someone has to provide it, someone has to transport it and someone has to validate it.

Even those involved in personal lines have had fewer issues given the comparatively small amount of data needed to describe, say, a car, house or even a life – and they also have a plethora of third-party data augmentation services to support them. And in a lot of cases now, the customer does their data entry for them online!

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Embracing the transition to digital

So, London’s journey towards digital Nirvana has of necessity been difficult and time-consuming.?But with the formation of the London Market Group’s Data Council, spun-out from the Future at Lloyd’s programme, we’re beginning to see some movement. There’s a long way to go but the start looks promising and for the London market to survive over the long term, it must ultimately embrace the transition to digital – with electronic trading being a fundamental element of that focus.

Healthy competition has been badly needed in the electronic placement arena and now several platforms and bespoke broker/carrier solutions are vying for a share of the market’s placement volume. The competing platforms are rapidly gearing-up for this data by offering Application Programming Interface (API) connectivity to participants and some very clever on-screen negotiation of the contracts that will, in time, be entirely constructed from the data with not a word processor in sight.

So, although we’re not there yet, the tarmac is being laid and while it may be another few years before the trucks are all fully loaded with data, it will be worth the wait.

This article?was first published in FF News | Fintech Finance and is shared here with kind permission and thanks. The original article can be accessed here:

The Challenges and Progress of Electronic Placement Insurance (ffnews.com)