Allianz Risk Transfer (ART) and Nephila Capital have piloted the use of blockchain smart contract technology for transacting a natural catastrophe swap in Bermuda.
According to ART, the test run demonstrates that transactional processing and settlement between insurers and investors could be significantly accelerated and simplified by blockchain-based contracts.
It also points to other benefits such as increased tradability of cat bonds and wider opportunities to apply this technology in other insurance transactions.
Blockchain is the technology underlying the bitcoin digital currency but its applications in cryptocurrency, smart contracts and distributed ledgers are currently being explored throughout the financial services industry.
The technology has the potential to facilitate and accelerate the contract management process of such cat swaps and bonds.
Each validated contract on the open shared infrastructure contains data and self-executable codes inherent to that contract.
When a triggering event occurs which meets the agreed conditions, the blockchain smart contract picks up the predefined data sources of all participants, and then automatically activates and determines payouts to or from contract parties, explained the insurer.
“Blockchain technology would increase reliability, auditability and speed for both cat swaps and bonds as less manual processing, authentication and verification through intermediaries is required to confirm the legitimacy of payments/transactions to and from the investors,” said Richard Boyd, Bermuda-based chief underwriting officer of ART.
“By replacing the human interventions which are currently embedded throughout the entire risk transfer process, frictional delays and the risks of human error are completely removed – with a radical effect on the speed and efficiency of the process and, in the case of bonds, on the tradability of such securities.”
Laura Taylor, managing principal at Nephila, added: “We believe technology will drive the future of insurance. We have invested a great deal accordingly and are pleased to extend our long-standing strategic partnership with ART to use of the Blockchain.”
Allianz Risk Transfer, Nephila, Technology, Cat bonds, Bermuda, Insurance, Reinsurance