Debates around data security and privacy will only intensify as insurers look to refine and build products using new information flows. The emergence of the connected world and new technologies presents a significant challenge: insurers must strengthen their expertise and capacity in data management and analytics, a task made all the more difficult by legacy system issues.
At the recent Insurtech Rising conference in London, there was a discussion around blockchain as a part of the technology solution emerging on the horizon.
The discussions at the conference centred on the theme that the insurance industry cannot be transformed by internal development alone. In many ways looking externally, encompassing new technologies like blockchain, could help solve some of the strategic issues of digital transformation.
So what can blockchain do for insurance? In the future can insurance products be powered and adjusted in real-time in response to data flows from the Internet of Things? To what extent have ‘smart contracts’ and collaborative business models emerged as possible applications? Who in the industry is taking the necessary steps to evaluate blockchain’s potential?
Speaking at the conference, Michael Mainelli, Chairman of Z/Yen said he believes that beyond the current hype, the potential for blockchain is enormous.
“In the IoT [Internet of Things] world we need a ledger of what happened and to be able to transact between distributed ledgers. The billions of messages required for insurance will much larger than what is required for the banking sector…Beyond proof of concept, the insurance sector is already much more developed in blockchain than banking. A whole bunch of studies are indicating there is a big change coming.”
Mainelli – Professor of Commerce at Gresham College, London and creator of the Global Financial Centres Index, the London Accord, Long Finance, the Global Intellectual Property Index, the Farsight Award and other financial services initiatives – said the objectives for insurance with blockchain are now to test use cases that are specific to the industry.
“Product development in the insurance industry takes too long. Full stop,” said Mainelli.
Speaking about the recent Blockchain Insurance Industry Initiative (B3i) consortium formed by Allianz, Aegon, Munich Re, Swiss Re and Zurich he noted that the first use case to be explored will be for frictionless circulation of reinsurance contracts. Running reinsurance contracts today still involves a lot of manual checking, reconciliations and Excel files flying around. Blockchain could potentially create a lot more transparency in the global flow of these contracts, even consolidating all the cash flows from contracts to reduce banking payments between insurers.
“We made this [blockchain] initiative by, and for, the insurance industry…Other insurers are welcome to join this initiative as well.”
All the parties in B3i are currently working with regulators – led by the UK’s FCA and FINRA in the US – to identify how to create value for the consumer. The first live applications for it will be in internal processes, creating efficiencies in contracts for private adoption before opening up the platform to other insurers.
Fei Zhang, Head of Blockchain at Allianz said the vision for the project is very much about proving a future for insurance products that could be located on the blockchain, even if the consumer doesn’t necessarily realise.
“For the Allianz perspective there are two types of use cases,” said Zhang.
“The first is company-specific, automating processes, for example claims management internally and then locating them on blockchain-enabled systems. The second is to take B3i industry-wide for collaboration and we want to play our role as a founding member.”
Cecile Wendling, Head of R&D and Foresight, AXA commented: “At AXA we really see there is a place to use blockchain. But we are at a point where processes need to change before blockchain can really start serving customers.
“In the end the consumer doesn’t really care how things get done. If it is a distributed ledger with an insurance stamp, they may not even be aware…But at AXA we believe this will be a change of automation. For the customer it will be like magic. I don’t believe blockchain will be seamless, but it will be a new type of distribution and a new type of service.”
Certainly the definition of blockchain, in its primary function – as a time-stamped server for defining risk contracts where the “code is law” – will require insurers to take a step back from the way things are currently done. If the goal is to write everything in smart contracts there will be a need to rethink processes.
Fei Zhang from Allianz commented: “The characteristics of blockchain make multi-organization processes much easier. It takes care of the governance of that central database.
“What blockchain offers is an alternative paradigm……Everyone has their own databases. You can see it. But at the same time the maintenance of the consistency of the database is done federally through the blockchain.”
Other examples of blockchain, for example in the diamond industry with Everledger, show the effectiveness of different parties coming together for processes in ways they’ve never done before. When you have stakeholders working well together this leads to the ability to share proofs of data. The private data can exist and it can be used, but without viewing it on any single database. Counterfeit data is not shared by anyone in the system, which leads to counter-fraud applications.
In this vision blockchain could allow different types of products. With different layers of data available this could lead to more individual-based coverage and data-based coverage: micro-insurance, spot-insurance and motor policies that adapt in real time as we drive.
“From AXA’s viewpoint I see the evolution of blockchain as a way to improve privacy and some other specific uses that will come with education,” commented Cecile Wendling.
“Blockchain is really a multi-organization database with an authenticated data trail. So in a way it is boring. But it can make insurance more collaborative.”
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