Yet Another Insurance Exchange Emerges

on Oct 14 by Barry Rabkin
Tags: insurance exchanges
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Business Insurance published an article  written by Sally Roberts on October 11, 2009 titled “Broker group launching online placement system.”  Yes, this is yet another attempt at an insurance exchange in a long line of such attempts. Unlike natural biological systems where evolution seems to have quite a lot of success optimizing life for existing conditions, the insurance industry hasn’t had much luck with their many attempts at insurance exchanges.

Why don’t insurance exchanges find success? For an outsider, it seems like a great idea. And obviously it also seems like a great idea for producers (the demand side of the supply / demand equation) given all of their attempts to build a lasting exchange.

The goals and attributes of this latest version, which is a partnership between the Council of Insurance Agents & Brokers (CIAB) and LexisNexis, certainly are laudable. Some key points about this latest exchange from the article:

• Improve the efficiency and transparency of the broker-insurance distribution system while enabling insurers to differentiate their products (hint: this is a key factor to the potential success of any insurance exchange)
• Intermediaries will be able to submit a proposal for coverage to any of the participating insurers [hint the number and quality of these insurers are also key factors crucial to ongoing success] or wholesalers and collaborate with them on the underwriting, pricing and ultimate insurance placement
• Aggregate data flowing through the exchange to track marketplace trends including insurance pricing, individual insurer appetites{I wonder if some insurers will be shunned if they are not ‘eating enough’ as decided by ??], and new coverage introductions, in real time

Will this insurance exchange succeed where previous versions of this species quickly became extinct?

I’d be more excited about its future if there were also quotes from insurance companies in the articles that I’ve read. Insurers, after all, are the folks with the capacity – the money – to actually cover the risks.

Insurers have been none to friendly to these exchanges in the past because they do not want to become a ‘cell in a matrix’ and put themselves in a position to be chosen primarily (only) on price. Not that producers would do that, particularly in the general liability middle market where the pilots of this exchange will begin in the third quarter of 2010.

Of course, it might only take one or two insurers to participate in the exchange to break through… or not. BTW: look at the article in Business Insurance to see the costs of participation for both producers and insurers.

So, will this new exchange last longer than its ill-fated ancestors? Time will tell but I would not put much money on it until I:

• See the names of the participating insurance companies
• Find that these insurers remain on the exchange for, well, maybe not necessarily as long as Lloyd’s exists
• Better understand the revenue and profit pools for insurers, producers, LexisNexis and the CIAB
• Have a better handle on the information-based products and services the exchange will offer the market participants

What do you think? Will this insurance exchange be the one that survives? Why or why not?