Understanding the vital importance of good e-trading systems

Effective electronic trading systems are one of the most important drivers of development in any financial services market.

London etrading

In other markets outside insurance these systems are getting better and better all the time. 

Their adoption creates opportunities, according to Michael Rude, former head of REDI EMS and buy-side trading solutions at Refinitiv, who said: 

“Our most sophisticated clients are automating trade workflows and building decision-support tools that enable the trading desk to focus on opportunities and issues. They are streamlining the ‘easy’ trades, and shining a spotlight on exceptions, such as an order for a stock experiencing a material price and liquidity change. The objective is to augment the human trader with timely and actionable analytics that enable desks to focus on what matters, and to trade smarter.”

Isn’t that just what we need in the specialty insurance market? Systems that release traders from the admin drudge and unleash opportunities to trade better and to innovate?

Yes please.

But walking into the London insurance market in 2022 means stepping back into the 20th century, where email rules and the main electronic system (PPL) barely does more than bind trades using antiquated PDF technology. Nor is there a common market messaging platform – other than email – so we are still in the realm of ‘processing’ not true ‘trading’ systems.

Listen to a broker and an underwriter describing PPL in our recent e-trading report:

“It is not a trading platform, it is a document storage and binding platform.” Broker

“It doesn’t allow you to amend a slip or endorsement at any point. Quoting, firm order, post firm order amendments/corrections. The document comparison tool is useless. It’s essentially the same program it was 10 years ago and PPL has done nothing to update it or use more current technology. It’s only really useful (from an underwriter’s perspective) for binding lines.” Underwriter

This doesn’t paint an encouraging picture. But is there hope? Tentatively, yes:

  • Expectations are high – our survey shows that more than eight in 10 traders (brokers and underwriters) expect e-trading to be the norm within 18 months – in effect by the end of 2023! So, the pressure is on and the opportunity in play!  
  • Adoption since the pandemic is high with more than nine in 10 and five in 10 respectively using the two main systems, PPL and Whitespace – so anything better that comes along should be picked up quickly.
  • In our research, Whitespace is seen by its users as being significantly more user-friendly and intuitive than PPL, but the competition is likely to increase as PPL rolls out its next iteration later this year. Adoption (especially by brokers) will increase rapidly  if players think that having one system or the other gives competitive edge. This in turn will encourage other competitors into the space, so raising the bar.

Sophisticated, reliable and efficient e-trading systems are a must if our industry is to drag itself up to the standards of other financial trading marketplaces – or even, dare we say it, to gain a competitive edge over the new forms of capital and other risk transfer options with which insurance is competing.

If the Specialty Insurance Market can make the leap to true electronic trading in the next few months, there will be significant opportunity to gain competitive advantage. Miss that opportunity, however, and the Market risks remaining mired in antiquated ways of doing business and falling further behind its peers. 

Ben Bolton