B3i say catastrophe XOL reinsurance system to launch this month

B3i, the insurance and reinsurance industry initiative that aims to create standardised systems for transacting in reinsurance using a distributed ledger, says that its catastrophe excess-of-loss (XOL) reinsurance placement system is finally ready to be released.

B3i launched as a blockchain focused consortium of industry insider companies, aiming to create a system that would help them to transact reinsurance more efficiently and ultimately lower their costs.

It was clear from the off, in late 2016, that the B3i initiative was also about control, with some of the largest companies in the sector working together on a system that would centralise transaction activity around them, ultimately giving them an additional lever with clients and brokers.

It was a reaction to the understanding that if these major re/insurers didn’t try to move as a group they risked being left behind, as others were beginning to embrace advanced technology and start-ups were emerging that could eventually threaten some of their control over transaction flow in global reinsurance markets.

Quickly the idea of a blockchain based system fell away though, as the B3i initiative moved to use R3’s Corda, a distributed ledger still but not actually a blockchain at all.

In the majority of insurance technology use-cases blockchain is not the answer it was once vaunted to be, in fact just raising increasing number of questions and complexities. B3i recognised this and moved along accordingly, sticking with distributed ledger technology.

Now a private company, albeit still backed by industry giants with 17 major investors from the sector and over 40 companies from re/insurance in its community, B3i Services AG says its first product is ready for launch.

In announcing the appointment of interim CEO John Carolin to full-time CEO of B3i Services AG today (as reported by our sister publication Reinsurance News), the company said that the project he has overseen, to develop this catastrophe XOL reinsurance placement system, is ready for prime-time and will be released before the end of July.

We understand the aim is to release the system soon in order to generate awareness and drive traction to get some business flowing across it at the January 2020 renewals.

B3i says that it aims to become a “customer centric” software company, partnering with and serving the global insurance and reinsurance industry, including its brokers and customers.

There remain questions as to whether the Cat XOL reinsurance placement system will truly be open to all forms of capacity, creating a more level playing-field for participating in reinsurance through the platform and accessing risk.

That’s vital (we would say) if B3i’s software is to really benefit the broader industry and society as a whole, as it cannot be truly customer centric if its key (or preferred) customers are only its original backers, investors, and community of companies.

B3i will have to demonstrate through its implementations that it has a placement platform built for the wider industry, by that we mean all forms of capital and capacity, as well as global players that have as yet not been involved in the process at all, if it is to gain significant and broad adoption.

Of course, when it comes to the client base of the companies that formed B3i in the first place and its current backers, it encompasses a huge amount of the market. So, if B3i is the preferred system for placement for these firms, there is a lot of weight that can be used to encourage clients to make use of it and build traction anyway.

Of course, that’s how placement platforms have tended to work in reinsurance to-date. The pressure to use it is often too great to ignore, whether the benefits are truly there for the participants or not.

It’s to be hoped that B3i recognises that this is not a healthy way to run an independent piece of market facilitation software.

As we’ve seen time and again, platforms and placement tools that are “owned” by the market have tended to fail, or become tools largely used for backfilling data into centralised systems, helping them to meet ambitious targets for uptake.

Not much is known about the system that will be released by B3i so far. The early prototypes from it were largely placement facilitation tools, rather than true marketplaces for risk placement.

Whether they have moved more in the direction of a market remains to be seen. It may be considered safer for B3i to try to embed its software within the existing industry workflow, rather than to try to disrupt its own backers by bringing a new and more efficient paradigm for transferring and transacting in risk.

That would be a shame though, as the industry desperately needs this new, more efficient, open market-based paradigm, in order to make the ultimate cost of transferring risk much lower.

Saving money for the industry itself, by improving its processes using software, is one thing. But saving money for the ultimate customer and making the cost of accessing risk capital much cheaper is really a far more interesting and exciting goal, with much wider ramifications.

Lowering the expense ratio is exciting for re/insurance executives, their Board’s and their shareholders. But lowering the cost of insurance and levelling the re/insurance market playing field is exciting for the whole world.

B3i talks about “frictionless risk transfer” on its website, an exciting concept indeed.

But is it really in the interests of its backers to truly remove friction from the insurance and reinsurance market?

Levelling the playing field, which would allow other providers of capital to compete on a more even and direct basis, seems an unlikely goal for B3i considering the range of backers it has.

How ambitious will B3i be? I hope what emerges is a first step in creating a new frictionless paradigm for risk transfer, as that’s what this market really does need.

B3i talks about wanting to reduce friction along the reinsurance value chain, something we’re heavily in support of (as this really is required).

But is this a goal to reduce friction to remove costs, while also increasing control through adoption and enforcing usage?

Or reduce friction by opening up the market pipeline to allow much more efficient execution, broader participation, distribution of risk and to allow capital agnosticism to reign free?

It looks like we’ll get a little closer to understanding just how far B3i is prepared to go in this respect soon.