The accelerated shift to digital over the past twelve months has raised the profile and importance of pricing platforms in insurance.
AkinovA is one of the companies finding success in the space, with its digital marketplace allowing buyers and sellers to carry out transactions wherever they are in the world.
Matthew talks to Co-founder and CEO Henri Winand on Podcast 139 about how the platform helps in the creation of new insurance products and gives the owners of the risk a better way to optimise their capital.
Talking points include:
- Matching brokers with the right investors
- Meeting the challenges posed by intangible assets
- The importance of standards
- Creating parametric insurance products
- Improving business interruption cover post-Covid
AkinovA is one of the featured companies in our report, ‘E-Trading Platforms: Challenges, Opportunities and Imperative’, which is available to download for free.
If you like what you're hearing, please leave us a review on whichever platform you use, or contact Matthew Grant on LinkedIn.
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Continuing Professional Development - Learning Objectives
InsTech London is accredited by The Chartered Insurance Institute (CII). By listening to an InsTech London podcast, or reading the accompanying transcript, you can claim up to 0.5 CPD hours towards the CII member CPD scheme.
- Claim 0.5 hours for listening to Episode 139 of the InsTech London Podcast
The e-placing platform driving new insurance solutions - Episode 139 highlights
Matthew: Why did you decide to found AkinovA?
Henri: Our goal is to ensure brokers can create useful products for the insured and to give the owners of the risk a better way to optimise capital.
The biggest challenge for the industry today is the speed at which capital requirements need to meet the insured’s need for brand new things. Today, intangibles account for 80% of company assets, so insurers need to manage the link between the insured and the financial markets that own the risk, and be able to organise everything so people don't get cut out.
Insurers can create new products in this more dynamic environment, which allows them to underwrite the client in new ways. For instance, they can do cyber at scale and cover resulting contingent business interruptions, start to trade more dynamically, and allocate better products to the client. On the capital side, the industry needs to focus on how to optimise capital and we can do that by trading electronically.
Matthew: How does the AkinovA platform work between the buyers and sellers of the contracts?
Henri: If a broker can't find the capacity they are looking for, we've got a database of 20,000 investors across most asset classes.
We develop those investors with the client so they can underwrite new products. We provide the infrastructure for the contract negotiation, risk transfer and contracts and everything gets issued electronically.
Matthew: How do you get the word out to potential buyers of the cover? Is it entirely a broker market, or are you working with insurers and corporates?
Henri: Our goal is to make the broker successful, so we’re focused on working with brokers on certain lines of business where we know we have the capacity on the other side. The marketplace is not just about the origination of the risk, it’s also about who wants to buy it.
Matthew: Has it been difficult to educate brokers. Typically, it’s easier for people to sell what they know, but it sounds like you’re helping where conventional insurance isn’t suitable?
Henri: We need to do both. We need to help people with what they’re doing today but do it more efficiently and enable them to create new products for the clients they want to insure. Then when it goes to capital markets the investors, insurers and reinsurers can see it’s the right risk and it's presented in a way that they like.
Matthew: How do you find the investors? And how do they gain confidence and understanding about what you're doing?
Henri: They are all looking for new ways of deploying capital, particularly Environmental Societal Governance (ESG) which Bloomberg estimates will account for $50 trillion worth of assets by 2025. That’s a third of the world’s assets under management (AUM).
We need to be careful about how we bring people on board so they understand what they're investing in. We often see that the more we can educate investors, the more they look to participate in existing funds. We don’t service all 20,000 investors that can benefit from our platform directly; we service the funds and insurance players as they can aggregate more capital and demonstrate that they have the skill sets.
Our goal on the capital side is to make the fund managers or insurance managers more successful because they have the electronic infrastructure to onboard more funds. They can create something at scale and it works for us.
Matthew: There are restrictions in the traditional catastrophe bond market on what funds can invest in. How does that affect what you're doing?
Henri: The regulatory framework that's been created with the Bermuda Monetary Authority (BMA) is global, so we can do insurance and reinsurance, retro, bond and securities as long as they have an underlying of insurance. It's not just about reinsurance, we do the whole spectrum.
Matthew: What were the reasons for choosing to work with the BMA?
Henri: Bermuda is placed geographically between very large markets in London and New York. We've surveyed most geographies around the world and it was well placed when it comes to time zones too. Secondly, the BMA is on most people's global whitelist in terms of regulatory strength and balance, and it’s very quick. I know few regulators that when asked a question on Friday afternoon, provide an answer on that very Friday afternoon.
Matthew: It would be great to bring the work you’re doing to life by talking about some examples. Can you talk about your deal with Hiscox, supported by Guy Carpenter, for cyber cover?
Henri: In that particular instance, there was a fund manager with assets that were exposed to cyber risk linked to power generation. Companies can’t do a lot if they don’t have any power. Guy Carpenter and Hiscox were able to find parametric indices which correlated well with the assets of the fund manager and the trigger was created.
Because it was a parametric policy, they could use about 99% of the standard that we've gifted to ACORD for parametric insurance and reinsurance contracts and it was placed on the marketplace. The indices have existed for the last two decades if people know where to look, so they have a good history. Capacity came up, underwriters knew what they were getting into to deploy the capacity, and the broker transacted the transaction on the marketplace.
Matthew: In terms of you gifting the contract definition to ACORD, what does that mean in practice?
Henri: ACORD is the standards organisation for insurance or reinsurance and it does most of the templates that are used in the market. Standards are important because the less time people have to spend looking at the 50-odd pages at the back of a contract, the more they can focus on the front page, which is who is the insured, what's the risk being transferred. That increases participation from more players.
We gifted the contracts that we did with the initial dozen or so market participants that we standardised to ACORD. Its members can use them straight off the shelf, whether they are on our marketplace or not.
Matthew: Another example is the deal you did for a wind product that was underwritten by Descartes, which is well known for its parametric underwriting. Can you talk us through that?
Henri: That was in our climate strategy line of business and involved an advertising company that owns mobile LED displays. When wind goes above certain limits, those displays are at risk of damage.
The team at Descartes utilised some unique analytics as a participant in our ecosystem to create a bespoke product that linked a policy payout to certain wind levels. They could underwrite it precisely because they had analytics on all the locations down to pixel level. The insured was also happy because having insurance allowed them to buy more assets and grow their business faster.
Matthew: What tools and analytics are you using to help price contracts?
Henri: For any actuarial or technical price, we always remain neutral and use third party data piped to our users. There is a real growth opportunity for actuaries and analytics firms to monetise their data on the marketplace.
We use our own analytics to create market animation. If a client is looking at placing a transaction but nobody's willing to deal on the other side, the analytics should be nudging the brokers or investors to say there is someone they need to talk to.
Matthew: You shared two parametric insurance examples. What’s your view on how that space is going to evolve?
Henri: Interest is huge right now for two reasons. One is Covid-19 and indemnity. Policies get interpreted by the underwriter at the time of a claim, particularly if a claim is disputed. The basis risk to the policyholder is they’ve bought a policy, but it doesn't payout in the way they expected. With Covid-19, some business interruption policies didn't pay out as expected. They did eventually, but if the policyholder is a medium-sized business with a 27-day cash buffer, a payout six months later is not useful.
The second reason is there is a lot more data available now to enable micro-monitoring to take place. The trails from phones and credit card transactions mean insurers can create policy triggers whilst complying with GDPR and respecting people's privacy. They can create a policy that has no loss adjustment expenses because it either pays or it doesn't. That's why parametric insurance is so attractive right now.
Matthew: What are you seeing in the background around future pandemic-related parametric coverage?
Henri: We are working on contingent business interruption products related to Covid-19 but ultimately, there needs to be a government backstop. What we have seen over the last 12 months is extraordinary and the balance sheet of insurance is just not big enough to take the risk.
That said, governments around the world have gone down two routes to access the people in need of help, taxation and banks. Nothing or very little has gone through the insurance industry. As an industry, we have direct relationships with most people and businesses and yet none of that capital has been deployed through the insurance industry.
Governments can very quickly fund structures to back insurance. We are in the risk management business, so we are far better equipped to understand the various risks that clients have. That's what we do and going electronic with fast payout enables governments to become more remote from the risk and to truly scale up distribution and capital structures.
Matthew: What’s coming next for AkinovA? What can you tell us about what’s being structured for the platform?
Henri: We have four thematics and a fifth one which is the catch all bucket. The first category is climate strategies, which is super important as we’re seeing events happening more regularly. It’s important to have the capital as close as possible to the risk, with the right advisory, so we can grow an ecosystem there. That's about new products for f clients and being able to bring them to a broader list of investors.
The second category is intangibles, which includes cyber and contingent business interruption and any risks that don't involve insuring a building or something physical over tangible value. The way our investors monitor the value in terms of outcome is rooted in capital markets, so we need to have that electronic infrastructure between the two.
The third bucket is credit insurance, which isn’t a secular trend but more tactical. With Covid-19, there is a bow wave of credit risk coming into the market and there's confusion between solvency and liquidity. A business might be liquid because it’s being propped up by loans, but they need repaying at some point. Whether it's in six months or a year, some of that will unwind so credit strategy is very important for us.
The last one is mortgage insurance. There are about 10 players doing most of the mortgage insurance globally and it's a market that some of the participants want to deepen.
Matthew: Are you watching what’s happening in the crypto markets?
Henri: Yes and we separate crypto into different areas. There is cryptocurrency, which is the payment method, and there are lots of views on whether it's a useful thing or not. We're starting to see it in insurance covering ransomware, where people are being asked to be paid in cryptocurrency, so there needs to be a facility to pay. At some point there will be digital currency appearing that makes sense to everybody, so we need to look at it.
The other way to look at it is distributed ledger technology and there is a business case there immediately in the trade repository. Whenever a transaction goes through, we have it in a database, report it to ourselves to make sure that database hasn't been compromised, and we have to represent to our users that nobody's been tweaking the database.
It’s a lot more difficult to tweak a distributed ledger database than a centralised one because a hacker would have to hack everybody at the same time. The business case is a lot cheaper in terms of regulation and compliance by going to a distributed ledger. We can also attach coins, fiat currencies, and contracts so everyone is happy. What we mustn't do is think that everybody is going to have the same distributed ledger technology.
Matthew: What would be the minimum or maximum deal size that somebody could put through the AkinovA platform?
Henri: Ideally we are looking for deals where the limit is $10 million and above, but we've gone as low as a 50k limit and the premium was a few thousand.
Matthew: How do you find and weigh up new ideas to decide which ones you want to scale?
Henri: Like any investor, we look at whether the end market and the profit pool is big enough. It’s great to make new things, but if at the end of the day we leave with half a cent for our participants, who cares? The second test is are the people coming forward with the idea any good? The third test is whether there is money behind the idea. If those three tests are passed, then it's worth looking at.
Where do the ideas come from? The beauty of being a marketplace is that people are very willing to share ideas with us, and we respond with how we could scale it. The success of the marketplace comes because the people around us are successful. When marketplaces focus on how successful they are and forget the ecosystem, they tend to lose the plot. We are here to make our ecosystem successful.
Matthew: As a founder and CEO, what advice can you share about what it takes to build a successful company?
Henri: Try new things and be curious about business models. That's the first thing. What's the potential to make money and what's the business model? The second thing is to network a lot. Having calls with two or three people provides access to 20 other people. The third thing is to be prepared to do a lot of hard work and succeed through a first rate team.
Matthew: Henri, you’ve been very gracious in sharing so much with us and thank you for supporting InsTech London. It would be great to hear why AkinovA has joined us as a corporate member?
Henri: It’s super simple. Your network has direct links with the industry, the work you do is highly relevant, and your events are well-attended. Being a member allows us to make our case and learn from InsTech London and the rest of the industry. I’m only as good as what I know, and the only way to learn more is through people who are working in the market every day.