A Blockchain-Fueled Bermuda Insurance Exchange To Go Live in 2019

The Bermuda Insurance Exchange, a blockchain risk and capital exchange for the insurance and reinsurance market, will be launched later this year. The exchange will allow broker, reinsurance, and insurance companies access to the capital markets using blockchain (distributed ledger technology) delivered by ChainThat.

According to ChainThat, the exchange will allow risk and capital transfer between direct insureds, brokers, cedents, and captive insurers and insurance, reinsurance, industry loss warranties (ILW), and insurance-linked securities (ILS).

The exchange will go live with a production trial in July 2019.

David Edwards, CEO of ChainThat, said, "This is an opportunity for Bermuda to establish itself as the most advanced insurance market in the world."

At last year's Vermont Captive Insurance Association Annual Conference, in a session on blockchain and distributed ledger technology, Rocco Mancini, vice president at Marsh Captive Solutions, said that in order to understand blockchain, it is first important to recognize distributed ledger technology (DLT). DLT combines three technologies, resulting in a shared transaction record.

• Cryptographic keys create a secure digital identity to validate all parties to the contract. The cryptographic keys are attached to permissions associated with the contract.
• Peer-to-peer (distributed) networks create a shared system of records and connect the parties to the contract with a real-time shared view (distributed data storage) of the contract.
• Protocols are the algorithms surrounding consensus aspects (the rules) of the blockchain contract and are similar to a computer's operating system. For instance, a protocol dictates that you can't change X unless the other parties to the contract agree to the change.

Blockchain is a specific type of distributed ledger technology, originally developed as the underlying protocol for the digital asset Bitcoin.

The Bermuda Insurance Exchange will be implemented in stages, as follows.

1. Provide the framework for a traditional reinsurance market, including placement, accounting, settlement, and claims.
2. Introduce new capital, supporting the same processes for ILS.
3. Support securities and warranties and ultimately trade these instruments.

With DLT, ChainThat believes the Bermuda insurance market will reduce frictional costs, develop new products, and extend its distribution reach.

Other regional insurance hubs are also planned, which will enable brokers, insurers, and reinsurers to more easily form business networks across the globe, according to ChainThat.