Since January 2018 RYSKEX has been helping clients come to terms with, and profit from, the digital transformation sweeping the industry. The firm’s Marcus Schmalbach spoke to US Captive about what the company has been working on.
Why and how did RYSKEX begin?
Like many other good company stories, this one begins with a coincidence. I was a professor of innovation management but due to my former professional career I was also managing an institute dealing with the use of alternative risk transfer solutions. These disciplines formed an excellent cross-section for the use of new technologies, such as artificial intelligence (AI) and blockchain, in risk and insurance management.
With the help of some students, including Tatjana Winter, who is one of the founding members of the firm, initial research and treatment in specialist magazines turned into an insurtech called RYSKEX, the name of which is derived from ‘rysk exchange’. The official launch was in January 2018 and since then we have grown to over 40 people, including permanent employees and freelance experts scattered all over the world.
What projects are you working on?
The RYSKEX ecosystem is the result of years of research at the business school. We have dealt with the digital transformation of the captive insurance environment, and can now claim to be profitably influencing the future of the captives market. Through the technological use of blockchain and AI and a holistic approach, we are currently carrying out various projects with selected Lloyd’s syndicates, reinsurers, insurance-linked securities (ILS) funds, and captives.
The captives market is facing an unprecedented reorientation and RYSKEX is pleased to be able to proactively accompany this process.
You’ve completed projects with Lloyd’s and various syndicates based there. What are the current challenges?
Lloyd’s has no more but no fewer problems than other players in the industry. The key issues are the implementation of cost-reducing and efficiency-enhancing technologies on the one hand, and growth on the other.
At first it sounds like these targets are mutually exclusive, but the digital transformation of this traditional house opens up completely new possibilities for hard-to-calculate and hard-to-cover risks, with a special focus on non-insurable respectively emerging risks.
The digital challenge facing Lloyd’s is much the same as the one facing the rest of the captives market, which RYSKEX was created to help with. That gives you an idea of where the market is going.
Two core projects at Lloyd’s are digitisation and the creation of innovative risk solutions for emerging risks. Do you see any synergies with the captives market in the US?
More than 50 percent of the business Lloyd’s syndicates underwrite comes from the US. The topics being discussed at Lloyd’s were the same as those discussed at the Captive Insurance Companies Association conference in Arizona in March.
The digital transformation is omnipresent and the meaningful use of blockchain and AI is being put to the test by all larger institutions and companies. I have seen few sustainable projects in the blockchain area so far but I am a great advocate of this technology, and believe the Distributed Ledger Governance Association (DLGA) will bring the topic forward much further.
We are happy to be a member of this association and think that by working closely with various Lloyd’s syndicates and members of the Vermont Captive Insurance Association (VCIA), pilot projects can be implemented that serve as blueprints for the whole world.
What is the joint project between the DLGA and the VCIA? What are its goals?
Vermont has a well-established reputation as a premier global captive insurance domicile. It is the worldwide leader in captive insurance by premium written and third in the world by active licences.
As the leading captives association in the US for over 30 years, the VCIA has been at the forefront of championing innovation in the captive insurance industry. The DLGA was organised in Vermont to carry out its mission to enable its members to successfully demonstrate and accelerate commercialisation of their distributed ledger technology (DLT).
DLGA believes this can best be accomplished through effectively engaging with government, industry, and other stakeholders in Vermont, to help drive DLT innovation and economic growth and enhance citizens’ lives in Vermont and globally. With this strong momentum underway in Vermont, VCIA and DLGA believe that the time is ripe to organise a captive insurance blockchain industry working group, involving both associations.
The goal of this group is to encourage collaboration among captive insurers and managers, blockchain technology companies, entrepreneurs, and other stakeholders, to accelerate the opportunities for captive insurance blockchain innovation in Vermont and globally.
The close collaboration of captive insurance industry stakeholders and service providers with government institutions creates a unique opportunity that could serve as a blueprint for the rest of the captives world. Members of the group will be able to collaborate, pilot, and experiment in the development of a number of different blockchain applications for the captive insurance industry, as well as identify hurdles and potential roadblocks. These applications include, but are not limited to:
Ecosystem: the development of a blockchain based ecosystem that links captive industry managers, insurers, owners, blockchain developers, and other service providers. Collaborating with captives regulators where appropriate, members can pilot new and innovative solutions, products and services.
Risk trading platform: the development of a peer-to-peer trading platform (proprietary or public) for traditional but also emerging risks. This would provide innovative solutions such as parametric technology for hard-to-cover, hard-to-place risks, such as AI, cyber, climate change, terrorism and reputational.
Standardised risk exchange: a risk exchange based on blockchain, driven by AI that links demand (captives) and supply (third-party captives, insurers, reinsurers, ILS funds, capital market). Due to the smart contract structure, contracts can be negotiated, fixed and documented within 24 hours.
Claims solution: a claims process based on automated rules called parametric triggers driven by smart contracts in the blockchain to speed up adjustment, management and settlement of claims and payment, even for large damages.
Blockchain is an emerging technology that has the potential to transform the captive insurance industry. This group seeks to continue the collaborative nature of Vermont’s captive insurance industry in pursuit of the state’s position as the Gold Standard captive domicile.
Parametric solutions are very topical. What are they?
With a parametric solution the traditional claims process is no longer necessary. If a trigger or triggers occur, then a set amount will be compensated. Especially for products that are currently not possible or are difficult to insure, the combination of the blockchain with parametric triggers seems to reveal possibilities which previously could only be dreamed about.
Parametric solutions are very cost-efficient and ensure a high level of customer satisfaction. In traditional insurance, parametric triggers play a very minor role, as there is an obligation to prove that the damage occurred.
This often requires a long review process and, in the case of syndicated contracts in particular, due to different wordings of the insurers involved, legal disputes can arise, meaning the settlement of major losses can often take months or even years. Of course, this is not in the interests of the insured, as they are dependent on a quick payment.
However, it seems difficult for existing insurance companies to switch to the parametric model. All re/insurance calculation models are based on traditional wording, and are suitable for conversion to parametric triggers when combined with blockchain technology. This solution approach therefore fits optimally to emerging risks, because here a traditional calculation is not possible due to the lack of loss data.
What are RYSKEX’s specific goals and what are your hot topics for the next 12 months?
We firmly believe in the interaction of blockchain, parametric triggers and emerging risks. The next 12 months will be characterised by the development of new parametric hedging solutions with existing and new partners.
The aim is to be able to define triggers for all PRICE (political, reputation, innovation failure, cyber, climate, equity) risks and, together with reinsurer and captives owners, to establish a pricing model based on AI.
In the medium term, our goal is to establish RYSKEX on the market with the company valuation of an established market participant. It’s an ambitious goal, and a correspondingly exhausting 12 months are probably ahead of us, but we are very much looking forward to it.
Marcus Schmalbach is chief executive officer and founder of RYSKEX. He can be contacted at: email@example.com
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