17 Dec A textbook one-stop-shop in Bermuda
Henri Winand, CEO and Co-Founder, AkinovA, guides us through the leading marketplace for the transfer and trading of insurance risk
When it comes to insurance and reinsurance in particular, Bermuda has an unrivalled capacity, a wide choice of products, diverse range of securities, expertise and specialty service providers, all of that in line with an astute regulator, that understands the needs of the market best than any other. Can you provide your views on the vibrancy, relevance and dynamism of Bermuda’s insurance market to date?
I would say that it is first-rate for many reasons. The regulator and the people backing regulators are investing the right resources in the right people. When you speak to the regulator, you have someone that is knowledgeable, proactive and reactive at the same time. That is not the case in a lot of geographies, where it can take months to get things done. By its location, it is between two of the largest markets, the U.S. and the U.K., and the rest of Europe. It has an ecosystem of 30 or more years, of people who understand risk and capital allocation, doing it for a very long time.
As CEO of AkinovA, believed by many to be the first regulated insurance marketplace since the formation of Lloyd’s in 1871, can you guide us through the genesis behind the rise of Insuretech?
Insuretech has been a way for the industry to access the end-clients. That is great, because it is about marketing and having a way of arranging the claims management. Many successful companies around the world treat insurance as something that is not limited to a once per year event or when you have a need, but as a service, where you can essentially wrap up technology around what you do and provide services. We found that a lot of the value is in the back-office and the plumbing of the risk value transfer chain. It is harder to do this, as you need to take into consideration the regulation, the data and all the interests from the various parties to make it work. That is where the amount of value comes at the intersection between risks, data lakes, analysis of those data and capital. Between businesses and capital markets, there is a very long chain of brokers going to the insurers, insurers going to other brokers, brokers into reinsurers, then going into other brokers and so on. Both of those sides are equally regulated. While all actors add value to the chain, the length of this chain was proven by COVID-19, more recently, to be too long. When the pandemic broke out, all the help of risk management was being done through the banking sector and taxation and not by the insurance sector. A year later, there is still no real pandemic product through the risk management industry that is available, at scale, towards customers. This chain is not able to react quickly enough, as it requires more than a year to reach a response. Nowadays, we are all connected to each other, so the speed and movement of capital has to be different. Instead of a long chain, you need to have all the actors around one particular platform. Then you have two regulatory frameworks usually distant from each other meeting on the same platform. To avoid getting crushed, we have created a new regulatory framework. When you want to transform an industry, the worst thing you can do is to tell people within that industry that you are going to ‘shrink them into prosperity’, because the industry works the way it is already, it is just that it is not efficient. We are all about growth, to enable them to do things of scale alongside existing business like intangible assets and, as part of it, cyber. Cyber losses around the world will be around USD 6 trillion per year by the end of 2021. Yet, there are only around 6 to 8 billion in premium per year today which means the true insurance gap is not cyber, it’s business interruption and its impact on intangible assets. There is an obvious gap of scale in this case. By rearranging this entire risk transfer chain into one compact marketplace, our pitch is not about shrinking people into prosperity, it’s about real and strong growth. For the last 40 years, insurance has grown in line with GDP broadly. However, by doing what we do well, we could offer industry 5 to 10 times growth.
What are the key differentiators for AkinovA that set it apart from its competitors?
AkinovA is the first regulated venue, where global capital can meet insurance, reinsurance and insurance link securities, directly, in a regulated way and electronically. All the others are doing reinsurance or extreme catastrophes, but we are the only venue with capital from 42 countries, with rated and unrated funds, where you can build collateralized and uncollateralized transactions within a direct insurance to capital markets regulatory framework. That gives certainty to the capital markets investors, but also to the insured, as the structure is there to operate front to back from the first day. On another note, various players have different ways of thinking of marketplaces. We maintain the view of that long chain I mentioned earlier, bringing it together in a more compact way without cutting any people out of the equation. We just provide one simple place where they can all work. If you think about insurance in financial services terms, it is a quasi-fixed income product with a certain amount of return, the premium and potential outflows, the claims. In the meantime, you reinvest the premium and have a return on that as well. The insurance industry is reasonably simple; where it becomes more complicated is with regulations, the capital needs and so forth. If you have an investor, that is not necessarily regulated to do insurance, through the structure they can participate in a new asset class. As we are successful, we open up insurance as an asset class.
Can you highlight how the company is planning to use data analytics and a machine learning framework to enable this data?
To match our sellers of risk to buyers, there are a lot of data. You need to understand what the true risk is, you need to underwrite it and be able to understand what the value at risk is. As we build our platform, we aim to enable the ecosystem of underwriters and brokers to successfully be able to monetize the data and the information they have. To be successful, we need to make sure that the partnerships with those data owners, fairly recompenses them for what they do. The best enduring marketplaces with a strong social purpose do not just think about themselves, they think about feeding and growing their ecosystem, given that once the ecosystem works well you can be there for a long time serving clients and society in innovative ways. Therefore, when we think about news, it is not ours but third-party news. When we think of analytics and the data are provided for plausible catastrophe scenarios, again, those are ours. We provide a forum where buyers and sellers can do that electronically. The fundamental way of re-plumbing that in a way that enables the ecosystem to make money is very important. We already forge partnerships with new data owners, that will allow us to accelerate movement within the ecosystem with all the necessary information.
How does last year’s partnership with Quant Insight improve these ambitions?
They analyse millions of data points every day across a large number of macro-economic points and asset classes, which are quite important for the insurance industry. By working with Quant Insight, our users are able to understand what their exposures are and to link the insurance side of an insurance company with their investment activities too. From that, they can create products on our marketplace to hedge their risks, thereby closing the loop the two sides of their activities.
Talking about innovation and expansion, you have mentioned that ‘the ILS market is around USD 100 billion, when it should be USD 1 trillion’, referring to the fact that the ILS market can grow tenfold, embracing standardization and developing new products, particularly ones that offer cyber exposure. Can you expand more on this topic and give us an insight on how AkinovA is taking advantage and enabling this innovation?
We do not need standards for everything. However, standards and/or indices enable capital market players to deploy capacity at scale. There is need for a path to standardized contracts and also provide more indices, let us call them lighthouses. Indices act as a bridge between complex transactions which could take a long time to analyse and asset allocators. Once you have no standards with indices, everyone is looking at the same index. Being able to play the index allows you to trade across many complex underlying assets, but everyone is looking at the same lighthouse. In that way, you can increase the audience. There are USD 26 trillion of intangible assets out there with no cover and no standards. By the end of this year, there will be USD 6 trillion per year of cyber losses which are not covered. So far, the pandemic has costs in excess of USD10Tn. We cannot cover all those risks with an industry that is smaller than these numbers. By definition, we need to open up, bringing in both growth and opportunities. Doing so will truly open up the ILS market alongside our insurance and reinsurance offerings.
You were named ‘Insuretech Company of the Year’ for the second year in a row at the 2020 Reactions London Market Awards. What particularly impressed the judges was your facilitation of innovative cyber products and new data room SAAS offering. What is next for the company and how does the five-year roadmap look like?
With fantastic support from Bermuda, we have done the regulatory piece. Now, it is about deploying that. What you need is a couple of products that catch the eyes of the insured, the clients. We are working very hard on that. After the announcement of regulatory approval, we also did some really innovative climate and cyber transactions which won us awards. In essence, for us now, it is all about putting the foot on the accelerator and play to our tremendous assets backed by a phenomenal advisory board.
What is like investing in Bermuda? Can you comment on the doing-business climate in Bermuda alongside the experience of working in Bermuda?
It is a country where you can have the right access and do business at speed. There is good rule of law, so you know that contracts will be enforced. Bermuda also pays a lot of attention to make sure it stays on the right lists around the world and offers transparency. On the other hand, you can still be an entrepreneur without getting totally lost in red tape. When you come up with something new, you have a lot of people in the country willing and ready to help and make things happen. You work with knowledgeable people as Bermuda is one of the very few global risk transfer venues around the world. They have the corporate knowledge of what you are talking about, as they see you moving from the very beginning, from a good idea to setting up. Bermuda is also a fantastic destination and a phenomenal place to live in.