As Bermuda and the global markets with which the Island transacts move towards the so-called 'new normal', it is timely to evaluate how developments in technology have already impacted and present opportunities to further enhance its position as a leader in the spheres of (re)insurance and insurtech. This evaluation is not limited to traditional (re)insurance but also broadens out to include the ILS market in which Bermuda is already an established leader.
One of the obvious ways in which Bermuda has been able to contribute to the growing tech sector is by being able identify the new risks that have been realised as a product of the exciting innovations. This may be in connection with exposure arising from assets held by a business (e.g. digital assets or NFTs) or may be as a result of services provided to clients (e.g. in connection with the operation of an exchange).
Another expansion of traditional insurance transactions has been the way in which transactions can now be collateralised, premiums received and claims paid out using digital assets. This is particularly important as we see clients that effectively wish to conduct as much of their business (which includes payment for goods and services) using specific digital assets as their effective functional currency rather than traditional fiat. Structuring insurance transactions in this way mitigates at least some of the friction, whether that be in terms of time, cost or fluctuations in exchange rates that can happen where clients need to move digital positions (or vice versa) in order to transact.
Innovations in the insurance sector and the increased use of insurtech has changed the way in which insurers operate. It is inevitable that this trend will continue as existing technologies develop and new technologies are brought to life. Insurers are increasingly embracing the use of artificial intelligence and with the vast volume of historical data now available, we are seeing the use of AI in a number of areas. For instance, it is being used to streamline claims processing as well as facilitate underwriting activity. Insurers are also exploring the use of technology in the writing of policies themselves, for example the use of self-executing policies where policies are concluded via a smart contract and claim payouts are automated. It remains to be seen how disputes as to liability and quantum would be dealt with in the case of a self-executing policy. As such, at least initially, this may prove more popular in instances where there is a set payout in the occurrence of a binary event.
Bermuda is well positioned for insurers that are embracing the use of technologies having created new classes of innovative and experimental insurers and creating an InnovationHub and Insurance Regulatory Sandbox where use of innovation and technology in licensable activities can be tested under the oversight of an established and highly regarded Regulator, providing assurance to investors and clients alike. Bermuda is also well known in the ILS market which allows investors to access to the asset class in a number of ways, whether that be through fund managers offering specialist ILS funds or other products such as catastrophe bonds or direct relationships with (re)insurance companies. Our view is that these structures, which have themselves evolved over a number of years as market and investor demands evolve, stand to continue to do so to address the use of new technologies such as smart contracts and new forms of instrument.
For example, Bermuda has an existing well-understood segregated accounts regime through which multiple transactions may be housed. This provides cost efficiencies with respect to both time and money whilst providing legal separation on a deal by-deal basis. Going forwards, we would not be surprised to see this structure used to link smart contracts to one or more segregated accounts.
In a similar way, Bermuda's fund regime is sufficiently broad to allow investors not just to invest with an ILS fund manager that offers access to the new and innovative risks that the Bermuda market is providing coverage for but it stands to reason that they could do so through the holding of positions in a tokenised form rather than the traditional share, unit or partnership interest.
Conceivably, one could then see those tokenised interests trading on a digital asset exchange. This then provides a product which is familiar in concept to those used to exchange traded funds, with differences to reflect the evolution of technology, asset class and investors. Such is the comprehensive and inter-connected regulatory legislative framework, such an exchange could itself be regulated within the Bermuda ecosystem.
At that point, one could certainly see the advantage Bermuda would offer as a jurisdiction providing a 'one-stop shop' overseen by a highly respected regulator within an established but flexible legal framework that has adapted to reflect the changing landscape.
As things stand, we consider that there is much to be proud of in the context of insurtech related achievements. For us, the key components to that success have been a solid foundation in terms of what already exists and a willingness to continue to innovate.
Such an approach does not seem to be one which looks to be in danger of dissipating anytime soon. In fact, we expect developments to continue apace. Not only do we expect to see this within the realm of insurtech but also by way of further integration across other sectors in which Bermuda operates.
For that to be successful, a comprehensive but flexible legal framework is key together with a robust but pragmatic regulator. Based upon what we have seen to date in terms of the reaction to the fast-paced movements, not only in this space but in the wider technology and asset management areas, it is clear to see why Bermuda would be and shall remain a most attractive domicile of choice for businesses, clients and investors alike.
First published in Bermuda Business Review, June 2022
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