Bermuda: Centre Stage: Bermuda's Role In An Insurtech Revolution

Bermuda is rapidly becoming a focus for insurtechs seeking the island's expertise, the accessibility of capital and its regulatory regime. This roundtable discussion hosted by Appleby explored the growth and health of the insurtech sector on Bermuda.

Q1: WHAT IS YOUR ROLE AND PERSPECTIVE WHEN IT COMES TO INSURTECHS ON BERMUDA?

Devon Sherman: I am wearing a couple of different hats today. One is as an advisor to Cactus, an insurtech startup based here in Bermuda, which has created an easy-to-use pricing and data capture system for underwriters and brokers.

I also have experience launching startup accelerator programmes in the US and I am advising on what accelerator models have the greatest potential to meaningfully grow the innovation ecosystem on the Island.

Josephine Noddings: I sit in the Insurance and Reinsurance team at Appleby, advising on the formation, structuring and regulation of insurance and reinsurance companies. I also sit on our global Technology and Innovation team.

We work on that team with clients that are looking at doing things in technology, helping them understand how the Bermuda regime applies to them, so I sit on both sides of the fence.

Our technology clients are using insurance and our insurance clients are using technology.

Heather Kitson: I'm Bermudian and been in the re/insurance industry for 22 years working in the London and Bermuda Markets in various roles including in the insurtech space. I am currently director of ReFlex Solutions which is a technology-focused reinsurance brokerage looking to bring greater trust, transparency and technology-driven efficiencies to the market, together with innovative new insurance products.

Ari Chatterjee: I am the chief underwriting officer and co-founder of Envelop Risk, an artificial intelligence (AI)-based reinsurtech. We have a native AI which lets us structure and price cyber reinsurance better than that available in traditional markets. We have written close to $500 million of business over the last five years. We have also set up our own class 3 insurer here: Augmented Re.

We believe underwriting will become more human+AI rather than pure human. We have seen the benefits of that—we have fairly and squarely beaten the market performance by using analytics. That is much attributable to the quality of the data we have that enables us to make better decisions.

Sandra DeSilva: I've been in the re/insurance industry for 20 years and chief executive officer of insurance technology development consultancy, Nova, for 16 years. I have provided strategic IT solutions for multiple class 4 startup re/insurance companies and I've advised several recently launched insurtech companies, including appointment as a board member.

James Ferris: Through my time with PwC and now with BMS I've had a strong view that technological development in the insurance industry needs supporting. When the BMA was developing its Sandbox, I provided some of my experience from discussions with the Financial Conduct Authority in the UK.

At BMS we have the skillsets to support all aspects of the insurance industry including insurtech and have experienced teams in the UK and the US as well as Bermuda that are active in terms of raising capital for the sector.

Mitchell Klink: I'm an associate partner in the consulting part of EY. In addition to the audit and tax work that most people in the market are familiar with, we help a lot of startups in this space. We help people get through their regulatory risk, their actuarial work. We have one of the largest actuarial teams on the Island. We partner with our US and UK practices connecting insurtechs to our traditional clients, helping them understand the landscape of insurtechs. And we have put together a composite solution called Nexus, which is built from a combination of insurtechs.

Adam Adamson: I'm the head of business development at Nayms. I have been on Bermuda for 14 years. I have worked at Artex Risk Transfer, Aon and Marsh.

Nayms is a crypto native insurance marketplace formed here in Bermuda utilising a segregated account company structure which allows us to effectively build a hybrid model around the current insurance-linked securities (ILS) marketplace.

It reflects what Lloyd's has created so effectively: Nayms is a play on the Lloyd's Names, which has worked so well for Lloyd's for the last 400 years.

We bring third party capital providers, underwriters and other entities to our platform to transact insurance business, but in a crypto native way. We operate using blockchain, utilising smart contracts embedded into each individual segregated account cell.

We're agnostic in terms of what types of coverage we can write. Our focus is predominantly the digital asset space and that lends itself to people who want to transact in a crypto native manner.

We basically create the infrastructure and, courtesy of the wonderful people at the BMA, we carry the licence. That allows us to do the insurance business based here in Bermuda.

Darren Wolfberg: I am the co-founder and CEO of Blockchain Triangle. We are a digital finance platform for environmental, social and corporate governance (ESG) infrastructure and climate compliance. We operate using blockchain, for digital securitisation and for climate compliance.

George Alayon: I lead the insurance innovation team at the BMA. I am responsible for the end-to-end process from the licence application stage to supervision to graduation until these companies obtain their full licence.

In Adam's company's case, they went the Sandbox route; it took them two years to graduate. Now they are a fully licensed insurer. I also review our regulatory framework. The legislation is constantly updated almost every year, sometimes twice or three times a year, to cater to all these emerging risks.

I have been in this space since 2017, but I have been at the BMA for about seven years. I helped on the digital asset business legislation back in 2018 when we were still building it; now, we have a dedicated team. My focus is mainly on where digital assets meet or converge with insurance.

Q2: WHY IS BERMUDA INCREASINGLY ATTRACTIVE TO INSURTECH COMPANIES?

George Alayon: We pride ourselves on being a credible regulator. We know the market, and we focus on making sure that we create space where entities can prudently innovate. We have three routes that companies can take.

We have the innovation hub, which is for the non-licensable activities, those that do not need a licence from the BMA; we have the Sandbox for those that are not quite market-ready and still testing. Then, we have the full licences available for those that already have the capital and expertise to create a viable business.

Josephine Noddings: Bermuda as a regulator is well renowned, well established and gives real credibility to people that are licensed under that. Bermuda is at the forefront in regulating the digital asset and crypto space. The credibility that the BMA gives to startups helps give peace of mind to investors.

They know the BMA will make sure that you're fit for purpose. The BMA is a different regulator as opposed to other jurisdictions. They work with stakeholders, with people coming into the space. They are accessible.

Darren Wolfberg: Why Bermuda? We were looking for a highly credible ecosystem. Second, Bermuda is where climate risk is expressed—we couldn't think of a better place to host our technology company.

Mitchell Klink: All the reasons that were mentioned, plus there is a talent ecosystem here. Not necessarily on the tech side, of course, but certainly in the industry side. So it makes sense to come here for many practical reasons.

James Ferris: For new startups seeking capital, Bermuda offers access to potential customers and capital providers. Bermuda, as a re/insurance hub, allows insurtech businesses to partner with local insurers and reinsurers to produce test and deploy products with the support of the industry and BMA.

Devon Sherman: In addition to what's been shared, Bermuda also shares attributes of the US, UK and Canadian healthcare systems which makes it a unique testing ground for healthtech startups as well as certain insurtech startups.

Corporate venture capital (VC) is also plentiful here and the angel investor network is becoming increasingly robust. Cactus, for example, was able to raise a quarter of a million from angel investors, which is meaningful at our stage. With that said, there's opportunity to continue to grow and educate the investor network. Understandably, people feel most comfortable investing in their areas of expertise so providing investors and potential investors with opportunities to become more educated on adjacent sectors, areas such as fintech, healthtech and climatetech, for instance, could go a long way.

There's also opportunity to put Bermuda more on the radar of venture capitalists outside Bermuda and encourage greater VC engagement here as Bermuda incubates more local and global startups.

Heather Kitson: Bermuda is at the heart of the world's risk capital, so it makes sense to be solving insurance problems here through technology and innovation. Why Bermuda? Aside from tax efficiency for some companies, from a regulatory perspective, the BMA is a nimble regulator for those companies who are regulated, and it offers speed to market, and supports innovation. We also have top industry talent and a global marketplace here in Bermuda.

There is good access to capital and a wealth of opportunity here. Insurance companies are under pressure to find revenue from other sources; they're looking to diversify and seeking new investment opportunities that will be accretive to their own business.

One downside is that Bermuda is a very expensive place to do business given the cost of living and associated high salaries. We need to continue to take steps to make Bermuda a more attractive place for businesses in terms of operating cost and continue to support the skillsets we can develop from local Bermudians.

The high operating cost can be a barrier to entry for some new startups who must be efficient with deployment of their initial capital.

Ari Chatterjee: Bermuda was a natural fit for us from day one. The BMA was the regulator of choice and the time zone is perfect. When Envelop started, Bermuda probably was not the market of choice for cyber reinsurance. London and US markets were much larger in terms of market share. But in the last five years, we have seen a dramatic shift.

More than 50 percent of the global cyber reinsurance market comes through Bermuda. That meant we could attract the talent to underwrite and offer products which are meaningful.

Bermuda has its real upside, especially for underwriting companies. The “Insurtech 2.0s”, which are more focused on underwriting than distribution, are a natural fit due to the regulatory environment here, due to the access to capital—not only trade capital, but also venture capital, and also the talent pool, which is quite conducive to business.

Sandra DeSilva: I agree with a lot that has been stated and would also like to add some historical context. A lot of hard work has been done in Bermuda over the last 20 years to support insurtech today. As one of the first insurance technology companies, well before the term insurtech was born, we advised re/insurance companies to use technology as a strategic advantage. I have seen the thinking and adoption of technology usage transform over time.

In addition, Bermuda has been quite active internationally and showcasing Bermuda's capabilities at centre-stage in this field. I gave a talk at the American Bar Association about the rise of AI in the insurance industry, participation of the Bermuda Government Advisory Board, where the business community was constantly supporting the Bermuda government with ideas with market trends in the industry, attracting global conferences to come to Bermuda such as cyber and insurtech plus many more.

Q3: HOW DOES REGULATION OF THE SECTOR AFFECT YOUR BUSINESS?

Adam Adamson: We're a bit on the outside of the norm in that insurance in the crypto space has traditionally been very unregulated. That's not helpful if you want to get institutional investors to come in and put money behind you. Nayms was formed to bring it into a regulated area. In looking at all the different jurisdictions, Singapore, London, Bermuda stood out. I give a lot of credit to the Premier for some of his vision on this. The creation of the licence is attracting lots of startups in the crypto space to Bermuda.

Crypto and decentralised finance is inherently a non-regulated industry. That's the intent behind it, but it isn't something that works. You can't have institutional companies involved, but the BMA has the licences and infrastructure which allows a company like us to set up. As a result, there are other companies looking at utilising our technology to be able to transact business. There are also other unregulated insurers asking if they can work with Bermuda. They are looking at how they enter the Sandbox. They are looking at ways to be a regulated entity.

Darren Wolfberg: It falls back on the BMA and the regulation and licences and framework it provides. People who are innovative like to be with other innovative people; equally, people who are regulated like to be with others who are regulated. That's something that Bermuda has been able to deliver: the two key pillars of innovation and regulation.

George Alayon: I have probably reviewed almost 100 pitches since we established the framework. It is very exciting to witness how those ideas are progressing, but the BMA is at a maturity level where we want to see tangible solutions. We do not accept business plans with ideas from three years ago; we want new ideas and action.

Adamson: We ask if it solves a particular problem. What are the risks around it? Software as a Service companies do not necessarily need regulation, but the engagement with us adds its own value because they're often enabling regulated companies to be compliant with what we publish.

In terms of the crypto space specifically, I agree that the attraction of Bermuda is precisely that it is a regulated marketplace.

Originally in the crypto space, people sought a lack of regulation. Now, people are focused on Bermuda's infrastructure because everybody's seeking investors and they want to see regulation. The whole infrastructure of the licensing here makes it an attractive place for crypto and digital asset companies.

Devon Sherman: One thing to add is that not everything is easy here from a startup perspective. Opening a bank account as a newly established company or obtaining critical licences can be prohibitively expensive. The pricetag of doing business here is definitely scaring certain startups away. While it is not easy to immediately solve this, we can collectively tackle it and create more startup-friendly processes.

Mitchell Klink: Bermuda is very good about institution-backed startups that are well capitalised. When you're a young garage startup, there are so many more hurdles because of that lack of certainty and credibility. Bermuda promotes a gold standard of compliance and regulation.

But many startups begin in a garage; I don't want to limit those from having an opportunity here. If they have good innovation, that's what matters. But it's an expensive place to bootstrap.

Wolfberg: It's very difficult to balance between attracting these garage startups with the spirit of innovation and talented young people, yet the reason we're here is because of the solid reputation of the BMA. We don't want to bet the farm from a jurisdictional perspective.

It's a balance between attracting the new startups, lowering the barrier to entry, attracting the right people and allowing those folks through the gates who don't bring down the reputation of the jurisdiction.

Q4: HOW IMPORTANT IS THE ISSUE OF TALENT TO THE INSURTECH FIRMS ON BERMUDA?

Heather Kitson: We need to continue to attract talent to the Island by providing an efficient and smooth work permit process. The digital nomad work permit was a success and a good example of the government taking a more progressive, nimble approach.

We also need more home-grown talent and connect that talent to capital to grow businesses from Bermuda. Increased investment in school, mentoring and training is key and there are currently a few great initiatives underway.

Sandra DeSilva: There is strong presence of subject matter business and professional, but technology talent is very light. Having a technical university or ways to connect with some internationally would be helpful.

Adam Adamson: In the context of talent, Bermuda is a small place. If you want to really scale up is that going to be a problem? Especially given the type of staff you might need. On the insurance side, I think there's unparalleled talent here. But we're a 100 percent remote company—we do our meetings around a table just like this, except in the metaverse with our Oculus headsets. That's how we do our staff meetings.

Kitson: Bermuda is strong in some professions. You can't send a bowling ball down Front Street without hitting an actuary, accountant or a lawyer. But when we're looking at software development talent, the cost and availability of that skillset here in Bermuda is a different story particularly in comparison with lower cost locations. We're a village in the middle of the ocean and if we are to continue to play on an international scale, we also need to work globally.

Devon Sherman: Ignite Bermuda, an accelerator on the Island that enables and empowers Bermuda residents to create new businesses, is doing a phenomenal job galvanising local entrepreneurial talent. It has supported over 200 companies in the last few years.

Another thing to point out is that there are pros and cons to being a small, community-driven, relationship-driven island. While there are obvious cons in terms of B2C scale, on the pro side, the customers here are remarkably engaged.

At Cactus, for example, we work with several big insurers and the amount of dedication they've demonstrated as early customers and the feedback they've provided have been invaluable.

George Alayon: We do monitor the talent needed in business plans. A lot of them have the ability to hire locally; others outsource the whole thing. For us what is important is that the company has the oversight—not just the talent retention, but also making sure that there is oversight of outsourced services.

DeSilva: One real positive has been some of the scholarships that are provided. The Bermuda Foundation of Insurance Studies and Bermuda Scholarships help to support students. Re/insurers need to attract students back to Bermuda perhaps through mentorship and making students aware of the progressive insurtech companies forming in Bermuda through these type of charities.

Ari Chatterjee: The challenge is often whether to hire a student out of a top university. Few students like to work for insurance companies while they have job offers from the likes of Google or Microsoft.

It becomes hard for them to prove they are doing something different. The tech stacks of insurers are outdated, so as a student you can limit yourself if you come back here.

Kitson: I feel it's incumbent upon us as insurance innovators to provide those opportunities for local talent.

Chatterjee: That's definitely one of the things that will get better. There aren't many of us in the ecosystem yet compared to the traditional insurance industry. But it's going to improve over time. Talent requires an ecosystem in which they could explore future opportunities.

Josephine Noddings: Being in a smaller marketplace rather than a bigger one means you get much more exposure to a wider range of opportunities. You might have more responsibility and a lot more exposure than if you're working in a big tech company. That's an opportunity that is very beneficial.

Equally, the skillset and the business knowledge that is grown out of Bermuda is cutting-edge in the area of insurance and reinsurance. The insurance industry here is so nimble. That creates a different level of value that we need to promote.

James Ferris: In terms of growing talent, Bermuda needs to take a longer-term view. We need to give young people the right skillset and baseline experience, but then let this young talent go out into the world, to get that global experience that is needed in such an international industry.

You'll then find Bermudians will bring that experience back home and take leadership positions in the industry. You can see similar happening in the legal and accounting professions. I don't think that's a bad thing. It is hard to keep quality young talent here, but Bermudians will come back and Bermuda will see a strong industry in a decade's time full of new Bermudian leaders.

DeSilva: Prior to starting Nova, I found re/insurers had to outsource technology development to other jurisdictions. We found success in having engineers closer to the business users.

Q4: HOW ROBUST IS INVESTOR INTEREST IN THE INSURTECH SECTOR?

Ari Chatterjee: Our experience in raising substantial sums of money from VCs is there's a clear segregation between the different segments of the market an insurtech is targeting. Distribution was the lowest-hanging fruit for many years. Insurtech 1.0 would do something like pet insurance, homeowners or auto.

The challenge was that it was driven on customer satisfaction and how quickly you can grow. But many proved to be extremely unprofitable as you need more capital to grow. The cash burn rates were extremely high at some of the best known ones. Some of them are almost out of business.

So VC investors are definitely sceptical of that model. They are now more interested in exactly how you're underwriting, and they are more sophisticated. Talking about AI alone is not enough now, they want to see how much data you have, where it comes from. SaaS businesses were the darling of investors for a while but competition in that market has grown quite substantially. It has taken a bit of a back-burner at least for the larger VCs. They are now seeking what we might call Insurtech 2.0. That revolves around things such as applying AI to underwriting, how to price risks better and also the fluidity of capital.

Some are considering a hybrid model: managing general agent versus traditional versus insurance-linked securities. Using crypto for underwriting probably has further to go to prove there's volume there, but it has traction.

I predict in the next five years we will see more companies with AI geared towards risk evaluation. Some of the newer startups will take over some of the original players to become dominant insurtechs in the world.

Sandra DeSilva: I agree. The Insurtech 1.0 generation and the insurance industry were like two ships passing in the night and finding it hard to enable the technology to the business transformation needs.

One positive outcome since then is re/insurers started embracing new ways of engaging with insurtech and are open to embracing a new culture.

Heather Kitson: The investor bar has been raised now, particularly in the current climate. Investors in the insurtech space are looking for more than simply great conceptual ideas. They're looking for people who understand insurance and technology and can build scalable and sustainable companies.

Against the background of several recent high profile failures, investors are no longer focused on looking for unicorns.

DeSilva: They're looking for something tangible that either fixes real-life problems or is a disruptor and provides marketplace opportunities. Data-driven solution for better insights, analytics, using AI for efficient underwriting or use of smart contracts are a few examples.

Josephine Noddings: They're looking not only at conducting their insurance in new ways but also trying to understand what risks lie in some of the newer technologies. What risks are associated with things such as smart contracts? How can they ensure their liabilities are managed appropriately?

Kitson: There is also innovative technology underpinning new products to the market such as non-damage business interruption cover on a parametric basis. It will be interesting to see what the take up of these new products will be and how risk managers fit them into their programmes and budget to adjust to building coverage to address the real-world risks of today including a potential COVID-19 resurgence.

Adam Adamson: The cyber industry went through that process where underwriters were getting up to speed, and there are probably a lot of underwriters in that space solving other problems.

Definitely VCs are looking for real problems to be solved, but also creating revenues.

Devon Sherman: I wanted to echo that the bar for investment has been raised. And investors are increasingly looking for startups to demonstrate strong, growing customer traction. One of the things that have really helped insurtech startups get customers and funding is that insurance companies are much more educated on the potential of technology now than they were five or seven years ago.

From a Cactus perspective, there is so much more comfort around the cloud now, which makes our business resonate a lot more now than it would before this education took hold.

James Ferris: I echo what people have said in terms of what investors are looking for. If there is a technology play that brings in new capital or opens up new markets then it will get investor interest, regardless of the current equity/investor conditions.

Mitchell Klink: With inflation and market volatility, I wonder if we will see more interest in non-correlated investment opportunities—anything adjacent to insurance should all of a sudden be worth considering.

Darren Wolfberg: I find the herd mentality of investors a little comical; they always want to invest at the top and not at the bottom. We are seeing a big re-evaluation but those companies able to come out of this are going to be very strong, very well capitalised, and that's when the investors are going to want to put in. That is a herd mentality.

Right now the herd has moved from one side completely back to the other side but they'll dip their toes back in the water.

Q5: CAN TECHNOLOGY BE A NEW ECONOMIC PILLAR FOR BERMUDA?

Devon Sherman: MIT has done some excellent research on looking at different innovation ecosystems that succeed and fail. The research shows that five key stakeholders need to be engaged in order for ecosystems to thrive: entrepreneurs, corporations, universities, risk capital and government.

There's a lot of meaningful, positive activity happening within each of these stakeholder categories that's contributing to making Bermuda a thriving insurtech hub.

However, there are also opportunities and gaps. The more these five stakeholders are in conversation with each other and sharing a consistent narrative of “why Bermuda” to startups and backing that narrative up with the right resources, the better.

Heather Kitson: I am working with Malcolm Furbert who is setting up a Bermuda insurtech trade association. We feel that there's enough companies and service providers on-Island to form a community to share innovative ideas and help promote Bermuda as an innovation hub.

This association will be formed by a community of insurtechs and forward-thinking insurance companies. We will continue to see investment by existing insurers in technology and technology will become a differentiator, if not the differentiator, for economic success in terms of driving better decisions through improved data-driven insights, reduced operating costs and improved customer service.

Ari Chatterjee: We will continue to see quality companies come here. In three to five years we'll see a substantially larger number of insurtechs in Bermuda, looking at where the money is going and where the insurance trends are, especially towards more underwriting capital and ILS and maybe even crypto. We have the infrastructure here and the regulations. The guidance we receive from the BMA is quite substantial in that journey.

We need to step up to some of the challenges, especially with talent and the cost of doing business here. We will probably continue to attract the larger, more institutional backed players that will create more jobs and create a talent pool that we can all hire from. I'm also interested to see what happens at this intersection of insurance and climate and global regulation that is currently manifesting itself everywhere.

Bermuda has significant infrastructure to develop as a climate risk hub, so far the BDA and the government have done a great job in highlighting our expertise.

Darren Wolfberg: There are very few places in a position to become the global leader in insurtech but I think Bermuda has that right combination of expertise on climate and insurance and as a regulated ecosystem.

I don't think there's a better jurisdiction. Speaking of the five different stakeholders in that process, I think it's Bermuda's to lose.

James Ferris: If a “technology” business becomes part of the Bermuda's business infrastructure, then I would say that business has been successful, rather than its being a standalone pillar. I want to see more businesses considering fintech options and using regulatory sandboxes beyond insurance players.

Success includes Bermuda being home to an active M&A environment with technology startups being bought, sold and transacted here.

Sandra DeSilva: Yes, I see a shift in the way capital enters the re/insurance industry, so technology to support this process is on the rise and it's where I have focused a lot of my work.

Mitchell Klink: There are two certainties: Bermuda will always be at the forefront of innovating on insurance products, and technology will always be a part of that. When you combine those two certain needs, I can't envision a Bermuda five years from now where insurtech isn't far stronger than it is today.

What advantages does Bermuda have over another jurisdiction specifically for insurtech? You have a concentrated pool of insurance talent, insurance expertise, insurance infrastructure, and professional services companies that understand how to review and service insurance companies. As long as Bermuda continues to have that infrastructure in place, along with the regulatory infrastructure, tech companies will choose to set up here, because where better is there to go?

Adam Adamson: The Five Year Horizon is great. People we're talking to every day are looking at Bermuda as a place to set themselves up as a regulated vehicle because of the infrastructure. The BMA has a great framework, infrastructure and programme which helps companies go from being small outfits to something a bit bigger. You don't find that in London. I'm hoping that there will be more growth in the insurance space.

George Alayon: We are open for innovation. The service businesses, the banks, the trust, the funds, they are all open for experimentation, and not just in insurance and digital asset businesses. I want to avoid predicting the future—we prudently manage the future.

Remember, the BMA is still protecting policyholders but we also protect the investors when they put their capital at risk. That is the biggest challenge.

Josephine Noddings: It's pretty clear that the technologies available to insurance companies are going to grow and develop, and the use of those technologies by insurers is going to continue. It's been a long time, some stakeholders have been involved in insurtech here for a long time.

I think it's going to snowball over the next few years as it becomes more publicised and we attract more talent and investors to Bermuda.

As long as we continue working with stakeholders and continue to be reactive to what the industry needs, we'll remain at the forefront of the industry.

Originally Published by Bermuda Finance 2022/2023, Insurtech Roundtable

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.