The myriad complexities that comprise reinsurance lines often make it difficult to conduct business via the Web, industry observers say. However, buying and selling reinsurance offline is plagued by its own deficiencies- notably excess paper processing and other accountability issues surrounding the process.Providers of independent Web-based reinsurance exchanges believe they have a more efficient process of exchanging risk globally.
Recently, London-based inreon, an independent, public reinsurance exchange, landed three marquee reinsurers: St. Paul Re, Zurich Re and Hannover Re. The three reinsurers signed on to inreon's Web-based service as sellers, offering reinsurance capacity to both existing and potential customers.
Risky business
Launched in December 2000 within a partnership formed by Munich Re, Swiss Re, Internet Capital Group and Accenture, the emergence of inreon adds another player to a small but aggressive fraternity of Web-based risk exchanges.
The online providers that have made inroads so far include Providence, R.I.- based Global Risk Exchange (GRX), Washington, D.C.-based dot.risk, Princeton, N.J.-based Catex and Risk Transfer Exchange, which was acquired in June by GRX. Each offers some level of program distinction, ranging from providing software so end-users can host their own exchange to assessing a percentage fee of risk sold rather than a flat fee.
Regardless of the structure, the need to revamp the chronically inefficient commercial reinsurance business is paramount.
"There's a need for a more rational operational process within the reinsurance market," Karen O'Brien, a research analyst for Framingham, Mass.- based e-business consulting firm IDC, says. "inreon's platform has potential to bring a lot of reinsurers and buyers to the table."
For a buyer, O'Brien explains, inreon's service usually is free; sellers pay a nominal fee of about $100 per risk product sold.
When New York City-based St. Paul Re, an operating unit of St. Paul, Minn.- based The St. Paul Cos., scoped out online risk exchange partners earlier this year, it knew what it was getting into. An active participant in the Catex exchange, which links buyers and sellers of catastrophic risk, St. Paul Re regarded inreon as a vehicle to build its European facultative property risk business, a type of reinsurance geared toward individual carriers, says Steve Spano, senior vice president of e-commerce for St. Paul Re.
How it works
Through inreon, a buyer submits an inquiry to its site, www.inreon.com and stipulates exactly the type of risk it's looking to acquire. The St. Paul and other sellers then submit a quote to insure that risk. Negotiations occur between buyer and seller-or sellers-on two levels, share of risk and cost of risk.
A buyer may submit a risk inquiry which in turn is transmitted to several risk insurers, including St. Paul, Spano says. One reinsurer may not want to assume the entire risk, so negotiations take place to split the risk among various sellers on a percentage basis. Then, the costs are broken down based on the individual assumptions of risk by the sellers.
There are a few oddities about online risk exchanges that may take carriers time to accept, experts say. "Because the process is very transparent, there's no hiding online-everything is in full view," O'Brien of IDC says. "Because information is out in the open, this can foster quite a bit of trepidation on the part of participants."
