The awaited launch of B3i’s catastrophe excess-of-loss (XOL) reinsurance placement system built on distributed ledger technology came today and the company highlighted it can be used for retrocession as well as treaty reinsurance.
As we explained earlier this month, the insurance and reinsurance industry backed initiative that became a company, B3i, said that its catastrophe excess-of-loss (XOL) reinsurance placement system was ready for launch.
That launch came today and with it the news that those adopting the system will be able to place retrocession as well as reinsurance using it.
However, the launch information also makes it clear that the old ways of doing reinsurance business remain, in terms of negotiations on placement terms, conditions and shares, with the system seemingly focused on process efficiency but not on the optimisation of the risk transfer placement itself.
Of course that’s still beneficial to those adopting the technology, so B3i’s system offers a lot to those willing to install nodes and get up to speed with the system.
B3i said that version 1.0 of its Property Catastrophe Excess of Loss Reinsurance product is now live on the Corda Network.
“The product improves the execution of the risk transfer process by reducing friction across the value chain, end-to-end,” B3i explained.
The application only allows relevant parties to have instant access to appropriate data, with controls available to restrict what information is disclosed to third parties, B3i said. It believes that this “removes contract uncertainty present in the current manual driven process.”
The catastrophe XoL system created by B3i is designed to be used by all parties, for brokers as they advise their clients, insurers managing their risks, and reinsurers providing capital.
It’s important to note that at every point capital is mentioned, so too are reinsurers. There is no mention at all of whether the B3i Cat XoL application would allow an ILS fund to participate in a placement, whether collateralized entities can use it, or whether it’s restricted to rated reinsurance firms only.
We’d imagine it’s open to all, at least it should be, given this is technology designed for a purpose to suit the market, a market where a significant percentage of limit comes on a collateralized basis.
B3i says the system will allow market participants to “interact, negotiate and place risk more securely and efficiently.”
Key points that B3i highlights are that the application will allow uses to:
- Reduce effort – in the manual activities required to place, renew and manage a CAT XoL treaty. Eg. removing the need to replicate communication of the submission package to each participant in the treaty.
- Improving contract certainty – as all parties share a common view of the state of the contract at all points in time. ‘First the deal, then the detail’ will become a thing of the past.
- Reduce operational risk – due to the elimination of double keying, (trans)coding and management of the information currently supporting the placement of CAT XoL treaties.
All beneficial for certain and important steps in lowering the expense load and related friction at reinsurers and across the wider re/insurance industry.
But it does miss a key point of electronic trading or placement, the optimisation of that placement to ensure the best outcome for all sides.
Another interesting feature of distributed ledger technology, blockchains or Corda as B3i is using, is the requirement to have your own node to participate.
It’s not just a matter of logging into a secure, cloud hosted or online system to check on the available risks, or to input one for marketing and placement. It seems a Corda node may be required to be installed locally for every single participating market or potential cedent wanting to access and use the B3i XoL system.
That’s not necessarily a problem, but it is a bit of an overhead, in terms of having to get everyone up to speed technically with what is required. In time, hopefully these ledger and blockchain type systems will be redeveloped to support technically more friendly ways of people accessing the system.
Importantly though and this could be particularly big for its first transactions, which are slated to be later this year in time for the Jan 2020 renewals, the B3i system supports management of global intra-group reinsurance, which could be a key driver for some of its large backers.
In addition, B3i said today that its catastrophe XoL system will also support retrocession, as well as treaty reinsurance.
Again, for the launch and given the major re/insurers backing B3i and that have participated in its development process, the support of retro could be particularly important.
Although again, given the prevalence of collateralized capacity in the retrocession market, it is perhaps a little unusual that B3i has not explicitly mentioned support for capital markets players or ILS funds (although we see no reason why it can’t technically support them).
Commenting on the news, Sylvain De Crom, B3i Chief Product Officer said, “B3i is shipping its first application and this is our first opportunity to share with the wider market, not only the Cat XoL application, but also the wider infrastructure we have built to date.
“The importance of this release is fundamental in delivering to the insurance market the ability for seamless negotiation, efficient placement and contract certainty on a distributed platform that allows parties to retain ownership of their data. We are all very proud to be able to use this new technology, to help make insurance faster, cheaper and better for all our customers across the world.”
John Carolin, B3i CEO added, “This is a pivotal moment for B3i, the team and its shareholders and this release is one we are proud to share.
“Looking ahead, the team are working with our customers in preparation for a live parallel run for year-end renewals whilst working towards subsequent releases and a production ready version in Q4 2019.
“B3i has laid the groundwork with this historic milestone, which paves the way as we continue to enhance the already rich functionality of our offering. In addition, B3i will be accelerating our partnership strategy to bring a broad array of solutions to customers.
“It’s a busy time at B3i and we are excited about the future!”
It’s going to be interesting to see how widely adopted B3i becomes. It clearly has the support and backing of huge players in this market and the efficiencies it can add are potentially of great benefit, while also not encouraging any kind of further disruption to their business models.
In that way the system is clearly designed by the industry for the industry, no bad thing. But we do hope it’s open enough to incorporate participation from the ILS market as well.