The shifting sands of the online marketplace have claimed some victims, but the remaining players are still fighting for the big showdown, says Alex Letts
I wonder how many people in the market are completely bemused by the whole electronic trading exchange concept.
Remember when the Big Thing was going to be buying stuff direct from the seller, cutting out the "frictional" costs? That's what was called business-to-business (b2b) exchanges and, in truth, that's what most people in the insurance industry still think this whole game is about.
Munich Re and Swiss Re's vehicle, inreon, has doggedly soldiered on in this space. It claims to be the reinsurance industry's online marketplace. It says it enables reinsurance cover "to be bought and sold across the
internet using secure and reliable technology". It competes with eReinsure, which describes itself as "a web-hosted software application for placing reinsurance". Er, that's an online marketplace, right?
While both of these companies have wildly differing business models, and indeed philosophies, they exist because there is interest in reducing the burden created by manual processing of low value, high volume facultative reinsurance placements.
But, don't expect to hear your broker recommending either platform. Most brokers see simplification of the placement process through technology as the thin end of the `disintermediation' wedge. That's not a game they will play happily - not yet at least.
None of the other non-proprietary survivors in the exchange game uses the term "marketplace". Indeed, sometime during 2000 "exchange" also became a dirty word, associated with the dotcom boom and bust.
But other players were also reflecting the industry feedback that there was little perceived added value in making the placement process electronic.
Private marketplace
The most notable of these was Catex, which, although still owning the original Catex marketplace, diversified from its buyer-meets-seller auction model. It says it "delivers value to its clients by providing innovative technology solutions, which enhance current business practices by unlocking the efficiencies derived from improved information flow".
It began to build private, proprietary marketplaces, such as for Royal & SunAlliance, that compete with inreon and eReinsure, hence its emphasis on "solutions" in the plural, as opposed to the specific "solution" offered by eReinsure.
Meanwhile, Riskclick also moved into private solutions, disowning entirely the open exchange proposition embracing, like Catex, the notion of providing customer-solutions. It claims to create virtual communities "that work together across borders and time-zones with complete security and real time access to relevant information and documents for any assignment or transaction".
The idea is to create a small private network of counter-parties, which allows companies to share, manage, and track insurance documentation over the web or across their own networks internally. In effect, Riskclick has repositioned out of the exchange game altogether, pitching head-to-head with the vertical insurance divisions of the big IT providers like Accenture, IBM and HP.
Document sharing is really the easy side of the game. Live data, or workflow, is where the going gets really tough. Enter stage left, somewhat contentiously, the real world marketplace, Lloyd's, as technology speculator with its start-up venture Project Blue Mountain (PBM).
Data transfer
PBM claims to enable the commercial lines insurance industry to both transfer risks efficiently and manage those risks effectively, avoiding the need for multiple data entry, by transferring that data electronically.
There's certainly no doubting the aspiration to attack the space where insurance data needs to be passed from system to system in a processable format. But it's no molehill that PBM has to climb in terms of technology build and subsequent multiple, complex IT integrations and data mapping.
But perhaps the toughest task lies in the choice of the Lloyd's-based target audience. Regardless of best intentions from its high command, the notorious conservatism of the day-to-day practitioners in Lloyd's is likely to test investors' patience.
The mountain would of course become less Himalayan if there were some central plumbing in place, such as the telephone network has for interconnecting people. In the reinsurance arena, the ri3k hub is already that infrastructure. Ri3k allows companies to administer facultative and treaty reinsurance contracts between each other without manual reintervention. Contract amendments, adjustments, technical accounting data, settlement, and claims are all managed across the hub.
This makes it an "intelligent hub", meaning that the data being passed through the ri3k hub will actually be understood by the receiving computers. This data bypasses repositories or the necessity to email contract information between parties for repeated manual re-entry. Incorporating Acord standards, the ri3k hub can pass contract data, plus all technical and accounting data into the existing systems of users, and, if required, the bureaux.
So the exchange game plays on, but the picture is clearer. There are now fewer operators, most of them within their own defined space. The question that now remains is who will succeed fastest, and then, will they expand into the other areas? 2003 will be the watershed. n
