Insurtech ILS And The New Normal

• Published date: 29 June 2022
• Subject Matter: Insurance, Technology, Insurance Laws and Products
• Law Firm: Appleby
• Author: Mr Matthew Ebbs-Brewer and Josephine Noddings

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...