In this article, Hermann Fried, Managing Director at bsurance discusses the challenges and opportunities of cross-border insurance innovation.
Globalisation has entered a new phase. As digitalisation continues to make markets and people more accessible, more businesses are crossing trading boundaries than ever before. In 2021 global trade hit a record $28.5 trillion alone, as new avenues for trade, innovation, productivity and growth continued to open up.
But, while our increasingly smaller world may offer big opportunities, that is not to say it has made things easier. From customs declarations, manifests, product licences, export evidence through to legalities – cross-border trade typically involves significant paperwork and regulations. Many of these can vary dramatically between markets and countries, bringing many barriers which must be overcome to fully capitalise on the opportunity.
None is this more prevalent than in the insurance world. When it comes to the European Union (EU), for example, despite the misconception that there are identical insurance regulations across the board, this is far from the case. Under the Freedom of Services Act every European financial institution can offer its services to other countries within the EU, while being supervised only in its home-country. Together, with the Insurance Distribution Directive (IDD), this Act should provide an even European playing field for all. However, since the IDD is a directive and not law, each individual country had to simply adapt its underlying laws to it in order to comply.
The result has been a wide scope for self- interpretation, with many member states operating different definitions which do not always align. It might be, for example, that a local regulator asks for an approved document not in existence in a business’ home country. Or it could be that the terminology used varies to the extent that it makes it difficult to ascertain exact responsibility per country. The result is a vastly limited amount of cross-border insurance innovation to date, with many companies deeming it a near impossible task. But this is not the case.
This is seen in our recent work with Gearbooker, Europe’s first Peer-to-Peer (P2P) equipment hire platform for the creative industry. Here, the remit was to provide an easy, worry-free experience for both those choosing to rent or lease products such as cameras, audio gear and drones by embedding insurance directly at the point of sale.
While the concept may have been simple enough in principle, the execution was not. This was owing to the involvement of three nations: Gearbooker, being a Dutch business, French specialist WAKAM as insurer and our Austrian-based business in the role of MGA.
This result was a raft of regulatory challenges. One of the main of these was the fact that each country operates different classification for what constitutes a financial service provider and a risk case. In our case, Austrian law, for example, does not acknowledge the classification of an MGA, unlike the Dutch regulators. This meant that we were unable to generate a document to validate our MGA status in Austria in line with Dutch requirements.
Addressing this, in short, required a momentous amount of persistence. Working closely with all involved regulators from the offset, we worked tirelessly to present our business case – being the fact that although the Austrian regulator does not define an MGA – bsurance still acts as one. This was supported with an extensive demonstration of the blind-spots found in the IDD drawing on our years in the field. The result, after months of negotiations, was that the Dutch regulator finally registered our business as an MGA.
But this was just part one. Further complication came in the fact that not every business entity can sell insurance in all countries. In our case, Gearbooker, was not legally allowed to sell insurance, meaning we had to register Gearbooker as a ‘tied agent’ of bsurance. On top of that, we had to make sure that – as a tied agent – Gearbooker was not only allowed to do business in the Netherlands, but in Belgium and France where it also operates as well.
This was complicated on two counts. First, the legal construction of working cross border as a tied agent is pretty rare, so there was no basis as to how we could open up Gearbooker in this role in all three regions. Second, we needed to figure out who should notify the Belgium and French authorities of Gear booker’s intentions in the role. Traditionally this would have been done by the Austrian regulator, since Gearbooker is acting on bsurance’s licences – but regulation deemed it impossible to notify a Dutch business not registered in Austria. Fortunately, after months of discussions and proof that bsurance is registered as a financial service provider in both countries, the Dutch regulator oversaw this for us.
While certainly a trying development process, the end result is one which has exceeded expectations and opened up a raft of revenue opportunities for Gearbooker. The product was launched in early May 2022 and immediately resulted in hundreds of policies sold. Based on the first few weeks of operations, the monthly growth rate will surpass 20% in product sales.
A Pan European Insurance Market
As we look to the future of insurance, it is our hope that the EU comes together to address many of the grey areas present in existing regulation and provides greater standardisation across each member country.
Alongside this, we believe technology must come to take a lead role. A simple but effective suggestion might be the introduction of insurer, MGA and broker identification – similar to the tax identification number which enables easy cross-border trade – to provide easy validation for all involved parties. This could form a central hub where businesses can upload relevant paperwork and regulators gain transparency, setting the ground for a real Pan European insurance market.
In the meantime, the onus is on businesses to take the mantel and push forward to bring new cross-border innovation to fruition. As demonstrated by our Gearbooker product, there might be a few hurdles for merchants to overcome along the way but it will surely pay off.