ILS seeks tech innovation

As the ILS sector continues to evolve and develop, its next big breakthrough could be driven by technology and the potential transparency and liquidity this could deliver, Amneris Koutsavgousti of Deutsche Bank told Monte Carlo Today.

While the emergence of insurtech is well on its way to revolutionising many other parts of the re/insurance market, it has yet to have had an impact on the insurance-linked securities (ILS) world. But that could be about to change.

Moves are afoot to create electronic platforms that would allow the trading of ILS securities bringing more liquidity to the market and driving potential growth.

That is the view of Amneris Koutsavgousti, a director, corporate trust sales at Deutsche Bank, who told Monte Carlo Today that such a move would represent an important breakthrough for the market.

“It is the big one that people have been talking about for some time,” Koutsavgousti said.

“The idea of an electronic trading platform is a powerful one and I think we are very close to seeing something come to market.

“A few trials have launched and if one manages to capture the market, we believe it would increase volume and the diversification of risks coming to this market. It will also offer much more liquidity and attract new investors as a result.”

Koutsavgousti acknowledged that while some trading already takes place in the ILS sector, it is limited. An electronic platform may also have the potential to allow investors to trade synthetic products, allowing investors to hedge risk more effectively.

A boost for the market
Koutsavgousti said there is some resistance to change in the market but that a shift to a more transparent trading model is inevitable and will represent a boost to the market for the long term.

“There is an element of the market that is suspicious that technology could disrupt the traditional function of the market, but it is almost inevitable that there will be disruption to the market,” she said.

“The aspiration in some quarters is almost to bring the ‘Uber effect’ to the market and radically disrupt the established processes used now.”

In mimicking the ‘Uber effect’, Koutsavgousti noted, the market is unlocking the power of data to make the front office more efficient. In this sense, data is being used to deliver real-time insights and reporting to help ILS managers to monitor their portfolios in the wake of the 2017 and 2018 losses.

“Managers continually look to improve the access they have to their portfolios and transactions, enhancing data transparency to enable them to quickly and efficiently monitor and adjust their portfolios if necessary,” she added.

Another key technology that could be central to how the ILS market changes is blockchain. In September 2018, a $15 million private one-year deal covered US wind risk for an unknown client where the notes were digitised on a private blockchain.
Although no similar deals have followed, Koutsavgousti believes this will be an important area of the development of ILS to watch.

“It is a hot topic and there is a lot of work being done on this behind the scenes,” she said.

“It could have important long-term implications for the market whereby blockchain can be used to create more efficiency in the execution and more liquidity if it is used in conjunction with an electronic exchange.

“It is yet another way technology could help the ILS market become ever more mainstream,” she concluded.

Amneris Koutsavgousti is a director, Trust & Agency Services at Deutsche Bank. She can be contacted at:  amneris.koutsavgousti@db.com