Electronic trading works effectively in the stock market so it is just the insurance 'turkeys' who are holding the industry back, says David York
Over a decade ago the financial markets began to introduce electronic trading. In doing so they succeeded in overcoming the traditionalists' objections and widespread 'corner fighting' that represented a significant resistance to change.
As a former chief executive of the Chicago Mercantile Exchange noted at the time: "Electronic trading remains the political impossible." The reason, he suggested, was that "turkeys don't vote for Christmas. Electronic trading threatened to sweep away the work and work life of the market traders and brokers".
Now some ten years later the competition between electronic trading and open-outcry in the financial exchanges is over. Electronic trading has won the battle.
It would be wrong to say that this was a bloodless coup, wars never are. Despite recognising the competitive pressures, there were too many stakeholders dominating the markets for whom electronic trading represented upheaval and redundancy. However, competition is a powerful voice for change and the drive for greater efficiency, contract certainty and reduced costs could not be silenced.
So what's different about the London insurance market? We are part of a global financial industry that relies on the sharing of complex data, the effective assessment of risk and the transfer of capital. Sure we've been trading like this for over 300 years, but let's not forget that the London Stock Exchange grew out of a number of informal exchanges in coffee houses dotted around the City of London.
Clearly technological developments have been essential to the advancement of electronic trading and the financial services industry has changed in ways that were inconceivable just a few years ago.
Given the effects the internet and related technologies are having on all our lives the pivotal role played by technology should come as no surprise. Nevertheless, some might argue that the London insurance market is a slow adopter of technology compared with the financial markets. But are we really that far behind?
The development and early successes of trading platforms such as ri3k and Kinnect run contrary to this argument.
Equally, the work being done by companies such as Intech Solutions, in conjunction with Kinnect and ri3k to create a seamless electronic trading environment would suggest that technology is no longer the constraining factor. So if technology is not the issue then what is holding us back?
The move to electronic trading in the financial markets has lowered costs, improved the process and created greater contract certainty. It has also fundamentally altered the way the markets work. Is this change something to be feared? Some may argue that it is, but fearing change is a poor excuse for holding back technological advance. To quote Lloyd's chief executive Nick Prettejohn: "The future lies in our own hands, and in our heads, because it is about an effort of will."
In the insurance market, as in the financial exchanges, the turkeys may be against it, but as both an insurance and technology professional I'll be voting for Christmas.
- David York is director of business development at Intech Solutions