Domination by founders blamed for poor performance

Online reinsurance marketplace Inreon is to shut after failing to win enough business.

Frantic attempts to sell the company to fellow electronic marketplace RI3K fell through last week.

Market insiders blamed Inreon's failure on poor marketing and its domination by its founders, Munich Re and Swiss Re.

The project is believed to have sucked up $50m (£31m) before its collapse. Its dramatic failure has raised questions on management strategy and how the trading platform was marketed.

One source close to Inreon's customers - the ceding insurers - said: "They got their business model wrong. We weren't looking for a partial solution for our facultative needs. Another broker doesn't get the job done."

Another added: "What they built was perfectly good, but they did it without talking to their customers.

"Inreon offered only certain property and casualty facultative business. The ceding companies wanted to do treaty.

"It couldn't help them with the core of their business, so it was the end of the story. This is the first time they've flexed their muscles in this way."

The crunch came at a meeting in Zurich last year, when chief executives of the ceding insurers and reinsurers came head to head with Inreon's backers.

When it became clear that Inreon's customers were looking for a different type of system, the company started looking around for a new partner or backer.

The quest led it to RI3K, but the resulting negotiations fell down over the price being asked.

RI3K chief executive Alex Letts said: "We had productive talks, but sadly we couldn't find a solution that made economic sense for both parties.

"It turned out that we were all tuned in to different radio stations.

"I feel very sorry for the Inreon staff. It's tragic and I hope there will be places for them in the industry."

Inreon itself attributed its failure to low volumes of risk.

Despite its claim of "more than 130 international companies" signing up to trade, the system never achieved critical mass.

It said in a statement: "Since the launch of the platform, the volume of risks processed via the platform has shown consistent growth.

"However, the total number of risks transacted remained low compared with total market volumes and fell significantly short of targets initially set by Inreon."

RI3K and Ereinsure are left as the remaining reinsurance trading platforms, but industry figures do not believe Inreon's collapse means they will share its fate.

"I don't think it's dead. It needs to be refocused and it will never succeed unless there's a combined will of ceding companies, reinsurers and brokers," said one.

RI3K can point to Aviva's use of its system for part of its 1 April renewals to show customer confidence.

Ereinsure expects the 20,000 submissions sent through its system last year to grow into 50,000 or even 100,000 this year.

As one source said: "The idea is not dead yet."