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Where Finance Finds Its Future

The New Face of Finance, Where Finance Finds Its Future. Future of Finance has one overriding goal. It is to host meetings (at the moment virtual meetings) that bring together long established members of the financial se
Latest Episode9/16/2022

How to make the InsurTech Revolution actually happen

Season 1, Ep. 121
According to Willis Re, there are around 3,000 self-proclaimed InsurTechs at work in the world today. The age and size and funding and technologies of InsurTechs is so various, and the range of activities they pursue so immense, that it is difficult to comprehend which innovations are working and which are not. The use of video and telemetrics, such as the admission of photographic evidence and sensors in motor insurance, attract headlines. But the sales and the funding tend to go to larger and more established firms, including more or less conventional insurance companies and software as a service (SaaS) vendors engaged not in reinventing the industry but in grinding down the expense ratios of the incumbents. Most InsurTechs have lowered the expectations they set at the height of the blockchain boom of 2015-18 and now seek partnerships with or acquisitions by the incumbents. Blockchain-in-insurance persists, but largely in collectivised or infrastructural forms, and as private or permissioned rather than public networks. It is artificial intelligence (AI) algorithms, capable of extracting information from growing repositories of digital data and learning from it, that are now seen as the crucial innovation in an industry which has relied since its inception on the quality of the data it can obtain. But even in the (ostensibly, no-brainer) case of data, the insurance industry seems stuck between the narrow focus of InsurTech specialists and the daunting and ever-increasing immensity of the data available. What is required to break the stasis is a fundamental re-conceptualisation of the industry to alter the incentives of both the insurers and the insured. At the moment, insurers assess risks not as problems to be managed but as financial opportunities. Policyholders, on the other hand, treat insurance as a less-than-honest product and an invariably negative customer experience. For them, it inhabits a twilight zone that lies somewhere between a necessary evil and an occasion for fraud. A true and durable InsurTech revolution would reverse the polarity of this negative dialectic. It would use data to understand the real needs of customers, as opposed to the cover which people are obliged to purchase for contractual or governmental reasons. The industry would then put a price on covering in their entirety the probability and impact of the risks that customers ought to cover - and then invite those customers to pay the premiums for a superior product. This Future of Finance webinar will review the impact of InsurTech on the insurance industry and ask whether the industry needs to re-think the fundamental principles by which it operates before it can be transformed by new techniques and technologies.
9/16/2022

How to make the InsurTech Revolution actually happen

Season 1, Ep. 121
According to Willis Re, there are around 3,000 self-proclaimed InsurTechs at work in the world today. The age and size and funding and technologies of InsurTechs is so various, and the range of activities they pursue so immense, that it is difficult to comprehend which innovations are working and which are not. The use of video and telemetrics, such as the admission of photographic evidence and sensors in motor insurance, attract headlines. But the sales and the funding tend to go to larger and more established firms, including more or less conventional insurance companies and software as a service (SaaS) vendors engaged not in reinventing the industry but in grinding down the expense ratios of the incumbents. Most InsurTechs have lowered the expectations they set at the height of the blockchain boom of 2015-18 and now seek partnerships with or acquisitions by the incumbents. Blockchain-in-insurance persists, but largely in collectivised or infrastructural forms, and as private or permissioned rather than public networks. It is artificial intelligence (AI) algorithms, capable of extracting information from growing repositories of digital data and learning from it, that are now seen as the crucial innovation in an industry which has relied since its inception on the quality of the data it can obtain. But even in the (ostensibly, no-brainer) case of data, the insurance industry seems stuck between the narrow focus of InsurTech specialists and the daunting and ever-increasing immensity of the data available. What is required to break the stasis is a fundamental re-conceptualisation of the industry to alter the incentives of both the insurers and the insured. At the moment, insurers assess risks not as problems to be managed but as financial opportunities. Policyholders, on the other hand, treat insurance as a less-than-honest product and an invariably negative customer experience. For them, it inhabits a twilight zone that lies somewhere between a necessary evil and an occasion for fraud. A true and durable InsurTech revolution would reverse the polarity of this negative dialectic. It would use data to understand the real needs of customers, as opposed to the cover which people are obliged to purchase for contractual or governmental reasons. The industry would then put a price on covering in their entirety the probability and impact of the risks that customers ought to cover - and then invite those customers to pay the premiums for a superior product. This Future of Finance webinar will review the impact of InsurTech on the insurance industry and ask whether the industry needs to re-think the fundamental principles by which it operates before it can be transformed by new techniques and technologies.
8/30/2022

Data provides the prices that drive activity in tokenised asset markets

Season 1, Ep. 119
Liquidity in privately managed assets is hampered by a lack of reliable and timely data about asset values. If value is hard to discern, privately managed assets are more difficult to buy and sell, harder to use as collateral and suffer from a less favourable accounting treatment. It is also difficult to develop secondary markets in which the assets can be traded. A distributed technology such as blockchain is well-adjusted to capturing, validating and then distributing data scattered across multiple databases, within as well as between institutions. It enables Inveniam to deliver the data needed to value private managed assets regularly, frequently and reliably without the need to centralise it in a single data warehouse.The data garnered by Inveniam is used by orthodox valuation agents such as Cushman & Wakefield, CBRE, Houlihan Lokey, Mercer and others to mark privately managed assets to market on behalf of their buy-side clients. The data enables the valuation agents to provide a faster, more frequent and more reliable valuation service to their clients. Where privately managed assets such as real estate, infrastructure and private equity can be marked to market daily, weekly, monthly or quarterly, by an independent third party and at low cost through the use of technology to retrieve and process data from widely distributed and highly variegated systems, two-sided markets can develop to facilitate price discovery.Accessible, reliable data improves valuations and makes two-sided markets possible, but liquidity ultimately depends on the engagement of market-makers with tokenised asset classes. They have already engaged with the cryptocurrency markets and can be expected to engage with the security token markets once issuance volumes gain sufficient momentum.The emergence of two-sided markets on blockchain-based networks will attract issuers of privately managed assets and funds invested in privately managed assets in tokenised form, because better functioning markets will lower the cost of raising and servicing capital (for example, paying dividends). Estimates indicate savings of between 20 and 50 basis points.Real estate will pioneer the tokenisation of privately managed assets in the United States because the impact of more accurate, frequent and independent valuations in reducing the capital financial institutions must allocate to the asset class is so dramatic. Similar benefits will accrue to holders of infrastructure and private equity investments as well.Reliable valuation data also cuts the cost of fund accounting or calculating the Net Asset Value (NAV) of a fund. If the cost of the NAV is borne by the fund, it lifts returns. If it is borne by the management company, it widens margins for general partners (GPs). With independent valuations, it also becomes easier to post fund units as collateral for margin loans.In the United States, the Decentralised Autonomous Organisations (DAOs) that issue tokens to raise funds and use smart contracts to service the tokens are now obtaining formal legal recognition. Three states have granted DAOs legal status and the leading jurisdiction for publicly traded corporations (Delaware) is expected to follow suit.