The Optalitix team were invited to contribute to a discussion where the digitization of the underwriting process for the London Market was placed in the spotlight. The business breakfast was hosted by Oxbow Partners and attended by insurance executives. It examined digital innovation and took a deep dive in to the potential role to be played by digital insurance trading exchanges in the London Market. The London Market is the largest specialist insurance market in the world. Over $110bn of business is traded, with global risks insured and reinsured by large specialist insurers.
What will determine the success of an insurance exchange?
Optalitix has worked for a number of years with GoCompare, a large personal lines insurance exchange focusing. Based on our experience, the most important aspect is exchange liquidity followed by efficiency and the age-old economic principle of supply and demand. The fundamental challenge all new exchanges face is how to achieve this liquidity. Given the strength of the brokers in the London Market sales process, their enthusiasm for any exchange is seen as key to establishing whether or not they will be successful.
The challenge for insurers
Those in attendance at the breakfast agreed that at present, the role and exact function of the exchange in this process was difficult to define as there are so many possible outcomes from this process. More time is needed to iron out the contribution these exchanges could offer and the value they could add to the digitization process. There was a clear consensus that a digital insurance economy was inevitable and that the appetite or lack thereof to align with this modernization would create winners and losers. Many insurers are working to become more digital. The group concluded that digitalization should not be viewed or tackled as one single mega project, but rather approached in a more organic fashion that allowed for flexibility and agility through a series of smaller initiatives. While it is impossible to predict the eventual look and feel of the market, every insurer needs the tools to be able to link to any new exchange to ensure they are not left behind when one of them becomes dominant.
What do we suggest insurers do?
To prepare for a Darwinian style process as insurance exchanges are launched across the market. Most of these exchanges will not survive, but some of them will become the go-to platform for business in the future. Insurers need to be ready to accept and respond to quotes across multiple exchanges. That will mean creating digital interfaces to as many exchanges as possible and ensuring information can be provided to their underwriters in a consistent way (ideally by data integration) to avoid multiple portals and logins being needed and creating operational complexity. The link to the exchange must be digital, and the underwriters’ workbench needs to cater for this. Optalitix Quote is our solution for insurers. Quote is able to connect to multiple exchanges digitally and provide a staging area for quotes and underwriting workbench that incorporates any models the underwriters might use in the process. It is designed to be rapidly configurable, allowing insurers to test and learn quickly without incurring massive costs.