With trading volume reportedly far below management's expectations, Web-based reinsurance risk-trading hub inreon was terminated in early May, leaving two players to service the global online reinsurance risk-trading market.London-based inreon was launched in December 2000 as a partnership between global reinsurers Munich Re, its U.S. subsidiary American Re, and Swiss Re. But according to industry sources, the decision to close inreon down came when the reinsurance giants concluded that the service would have a difficult time turning a profit-both short- and long-term.
Executives from Munich Re and Swiss Re could not be reached to comment on the inreon closure.
Lack of uniformity
Inreon's operational difficulties might have been due to several factors. But industry experts say inreon's woes definitely stemmed from an apparent lack of data exchange uniformity between its 130 global trading partners-many of whom adhered to disparate data-exchange standards on a global scale.
"It looked as though inreon didn't have a uniform data exchange standard in place," says Craig Weber, a senior analyst for Celent Communications Inc., a research and advisory firm based in Boston.
"In the online reinsurance segment, you have a lot of complex transactions, so it's critical to have a single data standard in place. For online risk trading to be successful, it requires structured data. But some of the members didn't have that in place."
inreon's management team realized that to generate the commissions they had projected from the buying and selling of risk, inreon needed much higher trading volume than it has been generating, Weber says.
"inreon might have had 130 members in the network, but due to data-exchange barriers, volume submissions were below expectations. The management team didn't see any indications that the floodgates were about to open," he says.
The Internet-based reinsurance exchange was intended to offer insurers, brokers and professional reinsurers a reliable, transparent, fast and cost-effective way to transfer risk. Risk was traded within pre-defined processes and within pre-agreed timeframes. And inreon provided market participants with immediate access to current and new business partners.
With inreon closed down, the online risk-trading landscape is now left to two reinsurance hubs-London-based ri3k Inc. and New York-based eReinsure.
The termination of inreon occurred after the provider had made some impressive strides in attracting new trading partners.
inreon had expanded its international operations to encompass Japan, Korea and Hong Kong. In March, the hub had wooed two major insurers from Japan-Sompo Japan and Fuji Fire & Marine, which signed membership agreements.
Facing challenges
Three Japanese companies and a total of 19 companies across Asia had joined the platform. And, in May 2002, the European Commission opened the door to Europe for inreon to conduct trading.
But in the end, the addition of these new partners failed to salvage the service. Reinsurance trading platforms, in general, have faced challenges.
Speaking at the ACORD Conference in May, Robin Merttens, COO for ri3k, said that ri3k had encountered difficulty implementing one global data-exchange standard in which to conduct business.
ri3k, which has 30 active P&C reinsurers, has been working diligently with ACORD in deploying XML. Merttens referred to ACORD standards as the "common tread" to its platform.
Ri3k, which offers an electronic infrastructure for parties to manage their reinsurance contracts and technical accounts, also "squandered" $3 million in engaging outside technology vendors and consultants that didn't provide the level of service ri3k executives expected, according to Merttens.
With inreon out of the picture, industry observers will be watching to see if inreon's partners defect to the other hubs, or if they opt out of Internet-based risk trading. One analyst believes inreon might have paved the way for the survivors to move forward.
"Although the project failed to meet shareholders' profit objectives, inreon raised the bar and opened the possibilities of electronic trading in reinsurance," says Don Himes, a research analyst with Cambridge, Mass.-based META Group. "inreon is a prototype of what a viable B2B marketplace should be."
