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Bermuda is embracing blockchain in a big way as the government encourages companies to relocate to the Island. Bermuda:Re+ILS takes a look at recent events.
Bermuda has always done its best to look ahead, to keep an eye on the horizon and ascertain what the future holds for its re/insurance industry. In the past year Bermuda has identified a new target on that horizon—blockchain.
The Progressive Labour Party (PLP) government that took power in Bermuda last year has announced that it is moving forward in its plans for the future of the Island as it looks at the legal and regulatory requirements of blockchain.
In a February statement Wayne Caines, Bermuda’s minister of national security, said: “The public can be assured that this government is working collaboratively with key stakeholders in the financial services sector, both locally and abroad. We have a disciplined, systematic and comprehensive approach to our entry into the market.
“This is a new age of technology, and we cannot turn back or look away from it. We must embrace it. The possibilities of technological revolutions can create new opportunities for job creation in areas and fields we have never seen before.
“This has the potential of transforming our economy by creating entirely new industries. Our goal is to see Bermuda take a leading role in advancing blockchain technology, and this government is moving swiftly, but very carefully in this space.”
With the PLP government moving determinedly in the direction of blockchain, a number of companies have been reacting in response.
Reacting to policy
“The government of Bermuda is passing legislation about digital asset exchange businesses, covering a wide variety of things that are built on the blockchain—everything from digital currencies to wallets to the supporting companies that are around these types of things,” says Chris Maiato, leader of EY’s Bermuda, Bahamas, BVI and Cayman advisory practice.
“That doesn’t necessarily mean a company that is providing blockchain in the market to an insurance organisation would require licensing by the Bermuda Monetary authority (BMA) or by the registrar of companies, which is responsible for the initial public offering side of things.”
According to Maiato, the framework for all of this is about creating a platform for Bermuda for the digital future. He says that the regulator has recognised the fact that technology is changing quite rapidly and how insurance companies are using technology is also changing quite rapidly, so the BMA are in the process of setting up a ‘sandbox’ environment.
In this setup companies, whether they be existing insurance organisations or companies servicing the insurance world, can go to the regulators and request access to the sandbox, where the BMA can work with them around the launch of their product and the concept of that product.
“It is not blockchain-specific, but that’s what the BMA is trying to do, in the expectation that we will have organisations in the market in the reasonably near future that will be looking to set up technologies that allow them to use blockchain,” he says.
Maiato states that the BMA is also actively seeking out partners and new entrants into the market, whether they be blockchain organisations or virtual asset organisations. There are advanced conversations happening with large blockchain companies about the potential for them in Bermuda, and what can they look at in the Island in terms of mechanisms that allow them to access the insurance market.
There are already a number of entrants into Bermuda. There’s a lot of activity by the regulatory bodies, the government and the insurance market, investigating and looking at blockchain more holistically as an application in the market.
“Collaboration is the appropriate word for what we’re seeing on Bermuda,” Maiato concludes.
“The government, the re/insurance industry and the regulators are all talking, which is fantastic—they’re recognising what’s going on in the market. The government has recognised the fact that we are moving quite rapidly into a very different business environment, underpinned by the ubiquity of technology in everything we do.
“They’ve said that we need to regulate this properly, and the industry has said the same thing. There’s a lot of dialogue and discussion going on around Bermuda as a technology platform in the financial services market.
“Recently the leadership of Bermuda, the Premier especially, has spoken to the consensus that Bermuda is the first jurisdiction to issue legislation and regulation related to digital assets, digital asset businesses and initial coin offering (ICO) business.
“Bermuda wants to be at the forefront of the industry, with a planned and pragmatic approach that balances our reputation with the risks of the new technologies, but also takes forward our very strong regulatory environment,” he says.
Surveying the market
“Organisations are having to grapple with a lot and IT departments aren’t geared up to keeping the lights on and getting hold of a lot of the new technologies that are emerging,” says Adrian Morgan, executive vice-president and head of AdvantageGo at NIIT Technologies.
“It’s not just blockchain that’s affecting the market. There’s also the internet of things, robotics, chat bots and so on, and everyone’s trying to make sense of them.”
AdvantageGo surveyed 30 C-suite insurance and reinsurance professionals from Bermuda, London, North America and Switzerland. Three quarters (76 percent) of those surveyed were currently involved in data analytics and big data projects, and more than half were looking at projects involving machine learning (55 percent), artificial intelligence (52 percent), and blockchain (52 percent).
“Blockchain is a very interesting one, because you see organisations trying to make sense of what exactly it can be used for,” says Morgan.
“I know that in Bermuda there’s a particularly well-known reinsurer where the chief data officer (CDO) of that business is looking to power the organisation by blockchain as a proof of concept. A lot of people are starting to play with it, and there are many opinions as the industry challenges its scalability and challenges its ability to actually power a market or a process.
“Then you have the other initiatives that are jumping in and starting to see some results with.”
When AdvantageGo looked at where organisations are investing, its survey showed that 75 percent of the organisations they spoke to were looking at data analytics, over half at machine learning, and about half at blockchain. It’s high on the agenda but at the same time, Morgan says, he hasn’t seen an enormous amount of innovation surface in the products that exist.
He adds that there will be innovation eventually, however. The head of innovation role is something that his company is seeing more and more of. Morgan said that he thought that the market was going to see more CDO roles pop up over the past year, and there were a few, but Morgan has seen more heads of innovation, and the servicing and engaging of that role, than before.
“The head of innovation is the person that AdvantageGo engages with in many places. It’s also clear that the innovation teams have teeth—it’s not a role that seems to be on the side, they are playing a prominent part, partly because disruptive technologies are having an impact on business.
“The landscape is evolving. The innovation teams are pushing the boundaries of what’s possible, of what can we do to support the underwriters at the front end, what we can do to mitigate risks, and we’ve had some very exciting conversations.
“There is a belief that these new technologies [such as blockchain] will fundamentally shift this industry.”
Advantages and worries
According to Kelly Superczynski, head of EMEA analytics at Aon Benfield, blockchain is an exciting technology that could have a transformative effect on many businesses—including those in the insurance sector—and is therefore gaining a lot of market commentary.
Banks are also aggressively pursuing blockchain as a potential solution to some of their challenges. There’s great interest in understanding blockchain and how it might be utilised within the insurance industry, but while there is a lot of talk about the opportunities it may present, it’s fair to say that the industry is still trying to identify where it could improve processes and operations.
Looking at possible advantages, Superczynski says that near the top of the list would be enhanced efficiencies. Re/insurance processing can be laborious as it uses a lot of people, and a lot of manual, and sometimes duplicated, data entry, and isn’t as straightforward as it should be in light of the technological advancements other industries have employed.
A tool that can seamlessly help to finalise contracts, help transfer money, and help claimant management, in an open and auditable environment is really compelling. It would increase the transparency of the transaction as well as its efficiency, in a way that just doesn’t exist at the moment.
According to Superczynski, that leads into areas such as approved claims processing—raising and filing a claim can take a long time because it goes through many approvals and parties. Could blockchain streamline that process? How automated would it be, how would it improve the time it takes to settle a claim?
“We can facilitate automatic execution of insurance contracts—for example, the idea of a smart contract—so can we have an automated contract that can be easily updated and processed in a more seamless way?” she asks.
“Another key facet of blockchain is in fraud detection and prevention. Once an entry has been made in the blockchain, it can’t be changed, so in theory the level of fraud should decrease and all actions should have a clear audit trail.”
Superczynski adds that there are some compelling uses for blockchain across the industry, but security is still a challenge. As blockchain doesn’t have a true central location, it’s only as strong as its weakest link, and there might be channels that need to be secured.
The other issue is regulatory. In a highly regulated environment, such as banking and insurance, how do you audit a blockchain? How do you control it? Who owns it? She thinks that regulators will find it challenging to develop an approach to blockchain, and this may prove to be the biggest hurdle to seeing widespread implementation.
“In terms of blockchain, companies are assessing its utilisation internally but it’s really meant to be this open ledger process, so you need a consortium approach,” says Superczynski.
“A number of companies are using it, but it really needs to work across parties, so as an industry can we come together in a consortium to effectively build out some sort of blockchain platform?
“There are insurance sector initiatives underway in this regard—such as B3i, in which Aon is participating—and banks are also developing their own blockchain projects. It is important that we, as an industry, agree on a path forward, as blockchain by its very design requires a collaborative approach.”
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