An open, technology-driven, programmatic reinsurance risk placement marketplace has been announced as ready for business by Tremor Technologies, Inc., which the company hopes will make the placement and matching of risk with the right capital more efficient.
Tremor Technologies is a Greenwich, CT based insurance technology (insurtech) start-up and the company said today that its reinsurance risk marketplace is now open for business.
Tremor has both buyers and sellers of risk lined up to use the system, following months of working with industry participants to develop the platform.
The company has venture capital backing and has been developing its technology platform and building a team of marketplace design experts for two years now, with the resulting smart market now available.
Tremor describes its technology platform as, “A smart market to establish fair and efficient market prices for reinsurance risks and programs, resulting in more efficient price formation for insurers, reinsurers and intermediaries. Risk is allocated to maximize the net benefits of risk transfer.
“Participants set limits on exposure within and across programs, and place bids indicating the quantities desired to sell or buy over a range of prices. With these inputs, the market platform uses optimization to find and execute the best allocation of risk and compute competitive clearing prices for settlement.”
Peter Cramton, Tremor’s Chief Economist and a recognised international expert on auction theory and practice, as well as market design, commented, “We maximize value for both sides of the market and then fairly share that value among participants with competitive clearing prices.”
Tremor is aiming to be an open market placement platform for insurance and reinsurance risks, helping to match the risks being ceded to the capital providers with the most appropriate risk appetite.
“Tremor has raised meaningful venture capital and has recruited a world class market design, product and engineering team that has been busy over two years building a tremendously powerful marketplace in direct partnership with market participants,” explained Sean Bourgeois, Founder & CEO of Tremor.
Tremor aims to fit seamlessly into the workflow of the insurance and reinsurance market, not disrupting the way companies do their business, rather making it easier and more efficient.
Reinsurance programs prepared by brokers and cedents can be placed using the platform, with legal contracts and data submission files held in virtual private data rooms to which selected capacity providers can be given access.
Reinsurers and capital providers that have been approved by the cedent will be able to review and evaluate the programs, then submit their own private, sealed bids to an auction process. The auction technology of Tremor’s smart market will match the capital to the risk in the most efficient and effective manner, reporting the final trades and prices that auctions settle at.
The use of placement technology in reinsurance can help all sides of the market to become even more efficient.
Tremor hopes that protection buyers (insurers, but perhaps also corporate risk transfer buyers in future as the system sounds suitable) will benefit from a more dynamic risk transfer market, with more efficient bidding and competitive pricing.
At the same time, the reinsurance and alternative capital providers (protection sellers) gain increased access to risk with a suite of powerful tools at their disposal to manage their capacity deployed across programs.
The dynamic management of capacity and its automated deployment to match it with risk (product) is common in other sectors where marketplace technology has already been adopted.
Tremor said that sectors which have adopted programmatic technologies based on auction mechanics have found that intermediaries continue to play a key role, assisting buyers and sellers in optimising their strategies and as a result intermediaries (or brokers) have developed new revenue sources from embracing these efficient markets and becoming experts in their use.
“Intermediaries will be an important partner for Tremor,” Bourgeois continued. “Our approach lets intermediaries focus on their highest-value activities such as program design, bidding strategy and analytics while we focus on pricing, allocation and placement with technology. Brokers will be welcomed as programmatic traders. We have built access specifically for them to manage client accounts.”
All market participants will benefit from the availability of more data about programs, the appetites and costs of capital, as well as richer information related to what the market actually wants and at what price it is likely to clear the market.
This is absolutely key as we move into a reinsurance and risk transfer world where margins are thinner, returns compressed as a result of the availability and abundance of capital, meaning pricing is less sensitive to external effects and can also appear less attractive compared to historical underwriting returns.
In order to adapt to the new reinsurance and risk market paradigm, for incumbents getting the best margin out of the business that risk capital is allocated to is vital, and the placement of risks and entire programs is part of the market process that can be dramatically improved.
Placement technology, like Tremor describes, will allow all insurance capital providers to reduce their cost-of-capital, which of course will offer another lever that heightens the ability of ILS and alternative capital to be ever more competitive with the traditional reinsurance market. Although at the same time heightening the efficiency of traditional capital as well, by making deployment more efficient and effective.
For years now we’ve been writing about the need for the market to adopt open risk placement and transfer technology tools, that will enable all participants to leverage the efficiencies of a marketplace.
Tremor’s programmatic reinsurance marketplace promises to make that possible, enabling open auctions of risk to be placed with the capital with the most appropriate appetite, but still offering ceding companies and brokers control in terms of who is approved to participate and how they earn their fees.
That’s a marketplace for everyone, not just for handing off risk to the capital markets, not just for reinsurers, not just for brokers. All can participate and the goal is efficient risk placement and transfer for anyone.
As we’ve said before, for the maximum efficiencies and cost-benefits to be realised, the risk-to-capital value chain needs to be addressed, while intermediation becomes seamless and less costly.
Of course this means that established players need to relinquish certain roles, or reinvent them, in order to get the best out of the technology driven risk marketplaces of the future.
Tremor aims to be a platform that allows for more direct placement of insurance risks with capacity, be that from the capital markets or from traditional reinsurers.
The open approach Tremor is taking, to providing the technology to match risk with capital and optimise allocations, also means that their does not appear to be any restriction in terms of what risks are placed using the marketplace, likely making a much broader set of risks available than most insurtech risk exchange initiatives efforts are working towards.
Trading platforms, marketplaces and exchanges (like Tremor has built) can provide the pipeline or mechanism to channel risk as directly as possible to the most efficient and appropriate sources of risk capital.
That paradigm makes everyone’s lives and jobs easier, reduces transactional costs, expenses, and adds efficiency that will reduce the markets ultimate cost-of-capital.
The adoption of open-platforms for risk transfer featuring technology that can match demand and supply, enables risks to be placed with the capacity that has the right appetite for them.
This can change the reinsurance syndication and placement model completely, while still achieving the exact same goals that all parties are looking for.
Tremor is in the process of actively on boarding buyers and sellers of risk, with risk placement auctions planned for the fourth-quarter.