Adderley argues the primary obstacle blocking the development of a secondary market for ILS is habit.

“People need to get used to doing business electronically – not just in the secondary market,” he said. “Everybody accepts there is too much frictional cost lost in premiums, everybody knows the market needs to be more efficient. The answer to that is to use electronic platforms, but people are reluctant to be the first mover, they are waiting for others to move first.”

Adderley predicts that as more insurance business is conducted on electronic platforms, the pace of change will accelerate as electronification gathers momentum.

“The same thing happened with cat bonds registering as special purpose insurers,” said Adderley. “Once there is a greater acceptance of electronic platforms generally, we will see more interest in a secondary market for ILS.”

The proliferation of new insurance linked securities presents considerable challenges for regulators, noted Adderley. In particular, it raises questions about whether such products should be regulated as insurance or as securities.

“Cat bonds, sidecars and other structures linked to a collateralised vehicle offer insurance risk in security form,” said Adderley. “The answer is probably that it is a security, given that the insurance entities writing the risk are already regulated. The important thing is that investors have access to sufficient information about the collateral.”

Adderley warned of the risk of overregulation, which could prevent the market reaping the benefits of innovation as it tries to keep market participants safe, for example in the collection of ever-greater amounts of data related to know your customer (KYC) rules.

“The trend in regulation is to gather more information on things like KYC and credit checking,” said Adderley. “Twenty years ago KYC was something businesses should comply with but now it is absolutely crucial. A blockchain solution could really help here, allowing people to keep all their data in one place and giving institutions access to it when they need it.”

He added: “Regulation is important but too much of it encroaches on business’ ability to innovate and solve problems. That is why the BMA’s regulatory sandbox is so on-point, it encourages that kind of flexible approach to problem solving – which then benefits other insurers.”

But he accepted regulators have a difficult balance to achieve between allowing innovation and preventing market abuse. “With regulation there is a fine line between giving institutions the room to operate, and the reputational risk to a jurisdiction when something goes wrong,” said Adderley.

Share
Twitter LinkedIn Email Save as PDF
More Publications
21 Feb 2024

Bermuda Privacy Law Compliance: Pitfalls to Avoid

Although members of the Chamber are aware that Bermuda’s Personal Information Protection Act, 2016...

19 Feb 2024

Bermuda: An Introduction to Dispute Resolution in 2024

International business is the primary area of economic activity in Bermuda, as a result of not just ...

15 Feb 2024

Preserving wealth in a Bermuda dynastic trust

The Vanderbilt family gained prominence through shipping and railroad empires and eventually various...

8 Feb 2024

Bermuda’s promising telecommunications future

Last year was a stellar one for Bermuda’s positioning in the global array of telecommunications se...

25 Jan 2024

Fund Finance Laws and Regulations 2024 – Bermuda

The Bermuda fund industry sees investment predominantly from North America and Europe, and therefore...

24 Jan 2024

Chambers Insurance & Reinsurance Guide 2024: Bermuda

This guide provides the latest information on sources of insurance and reinsurance law, overseas-bas...

23 Jan 2024

New Limitations on the Length of Stay for Visitors to Bermuda

In November 2022, The Minister of Economy and Labour, the Hon. Jason Hayward, JP, MP, announced that...

18 Jan 2024

Technology Experience a Must for Board Composition

Corporate governance is an enterprise-wide endeavour that addresses all aspects of an organisation. ...

11 Jan 2024

ILS Steps Up When Needed Most

After a robust 2023 for ILS, five experts in this space debated the changing role ILS is playing in ...

10 Jan 2024

The Global – your offshore corporate law questions answered

The Global is Appleby’s quarterly collection of expert insights and analysis on the latest develop...