Blockchain and the insurance industry – Part II

If interest in insurance technology (InsureTech) is a hot topic, no area of it is hotter than the rapidly burgeoning interest in the application of blockchain technology to the insurance industry at large. Consider this:

• In June, AIG announced the issuance of a blockchain-based insurance policy. This multinational smart contract-based product was created in partnership with Standard Chartered Bank and IBM.
• And just this month Allianz's Bajaj division has begun to deploy two smart blockchain travel and auto products aimed at drastically reducing claims settlement time, in some cases from days to minutes.

So why is this so great? What makes an insurance policy "smart"? Here's four important reasons:

1. First, there is no dependence on a third party for the enforcement of the contract. The elimination of the middleman considerably reduces the total amount of money spent on the contract.
2. Eliminating third party vendors also means that the entire process of validation and enforcement of the contract becomes speedy as the users are directly transacting with each other.
3. Since the terms of the contract cannot be changed, the users are at a lesser risk of being cheated. Smart contracts are free from all kinds of human intervention.
4. And finally, there is no risk of misplacing or losing the contract as the contract is saved on a distributed ledger. What this means is that each device connected to the network has a copy of the contract and the data stays on the network forever.

Consulting firm PWC has calculated a $10 billion annual saving can be realized through the implementation of blockchain technology to the insurance industry. Besides the cost savings in reduced processing, errors and time required, the power of instant access and legal certainty, the minimizing of reputational risk and the lack of a single point of failure all make this process high on carrier's watch lists. Interestingly, PWC reports 56% of carriers polled recognize the importance of jumping onto the blockchain train but 57% of them don't know how to respond.

The 2017 RVS conference to be held in Monte Carlo in September would be a good place to start.

At RVS (Rendez-Vous Septembre), an annual re/insurance gathering, the fast-growing B3i insurance industry blockchain consortium will present its newly developed prototype smart contract management system. The 15 member group, made up of Achmea, Aegon, Ageas, Allianz, Generali, Hannover Re, Liberty Mutual, Munich Re, RGA, SCOR, Sompo Japan Nipponkoa Insurance, Swiss Re, Tokio Marine Holdings, XL Catlin and Zurich Insurance Group was formed in October of 2016 to explore how the industry could utilize blockchain distributed ledger technology, which has gained a strong foothold in the financial service sector, to improve and strengthen its own business processes.

B3i envisions formation of an organization to manage contracts and claims as soon as 2018. This new entity would play an exchange role similar to the SWIFT inter-bank system for transactions and transfers. This idea is not without its critics, however, with some concerned that there is an inherent conflict by allowing the insurance industry to control the exchange clearing house as it would not have the appropriate independence from the market participants who created and use it.

Regardless of the details, the blockchain train is leaving the station and seats are in demand. You might even say the insurance industry is witnessing a chain reaction.

All aboard.