The link to the future
Blockchain. It’s a word that might still provoke a little bemusement among those who have never heard of it but it is a technology that grows in importance with every month that passes, as the re/insurance industry becomes more familiar with it—and as experience using it deepens.
The theory behind blockchain is quite simple. The idea is to remove the paperwork and complexity around transactions by instead using a single electronically shared ledger that cannot be tampered with. Once recorded, transactions cannot be altered. According to those involved in the blockchain industry it will eliminate or reduce paper processes, speed up transaction times and increase efficiencies.
As each transaction occurs it is placed into a ‘block’ and those blocks are then linked—until they form a chain that can be traced back to the source. Information is available to all who inputted a block and costs can be slashed.
“Blockchain works by combining new business architecture in combination with new technology,” says Wei Keat Ng, global chief operations officer at KPMG Digital Ledger Services. “We now have the Internet of Things, smartphones, smartcars, robotics—how we connect with everyone else has changed greatly in recent years. Blockchain could help knit together many enabling technologies.
“In the case of property/casualty some examples of this include connected devices, big data and drones. Insurance policies can
use blockchain to link them to a wider infrastructure, as a part
of a package.”
For example, Ng points out, there is data from drones, that can view a flooded area from the air and instantly inspect and help verify an insurance claim. Information from that could be used to automatically calculate a settlement in substantially less time. Machine learning is also coming into play in this area in early experiments.
“Blockchain brings some big advantages for the industry,” says Bing Lin, senior manager, IT advisory, financial services at KPMG. “It allows decentralisation and means that there is no single point of failure. Its encrypted nature offers possibilities that often could not be provided in the past.
“Companies are already using a lot of data, which needs to be controlled and validated. Blockchain means that this is less costly than in the past, by reducing administrative costs. It’s also changing the business model going forwards, with new insurance products and services.”
Blockchain also poses some fundamental questions in this area.
“Insurance companies tend to write insurance policies, confirm claims, set premiums and look at surpluses. However, were those claims paid swiftly or efficiently? And was the process customer-centric? When they went peer to peer customers learned a lot more about this and the insurance industry had to adapt to what was asked of them,” Lin says.
As a result, Ng adds, blockchain is allowing KPMG and the industry as a whole to look at claims and settlement processes.
“Blockchain, in combination with other technologies, helps the industry to source data from outside that process, to access large amounts of information and data and allow a streamlined and more automated claims process,” he says.
“It’s also freeing up claims adjusters from the more routine claims so that they can instead focus on more complicated claims.”
Grasping the nettle
One direct result of the rise of this technology has been the blockchain insurance industry initiative B3i, which was created in late 2016. The consortium expanded in January this year as 10 more members joined. It has been a catalyst for the industry to look at the possibilities that blockchain offers very carefully, and mirrors what R3 (a consortium formed for research and development of blockchain database usage in the financial system) has done for the banking industry in terms of catalysing investment and interest from senior executives.
According to Lin when looking into Bermuda’s current re/insurance industry claims, the transparency of information was limited and there were always delays between relevant parties. There were different systems and in places a paper-based manual system. There was a general air of ‘wait and see’ when it came to new ways of doing things. But then B3i was formed.
“There is still some scepticism, but on the whole people are now more afraid of being left behind, and that they might not get the full benefit of blockchain if they don’t take part as much as others,” Lin claims.
“Clients have been asking us when they should get involved in blockchain,” says Ng. “The last few years have been an exciting time for the industry. Blockchain started off as being very experimental, limited to innovation labs. But it’s now moving from pure experimentation into a technology that works for qualified use cases.
“Our own experience of it is in Singapore, where we have been working with the regulator. There are still open questions around things such as digital sovereignty, legal issues such as compliance and legal liability, and data jurisdictional issues. These are real life points that are being addressed by the industry in a number of pathfinder projects around the world.”
In the meantime, Ng points out that the technology itself works, although he adds the caveat that there have been issues in the past about scaling up and while the technology has developed very quickly, it is not yet at hyperspeed. Clear governance and security frameworks are also needed.
“Just like in the earlier days of the internet, we need to use this technology correctly as it matures—we need to address real world needs and what the distributed ledger technologies can currently deliver,” says Ng.
“My personal view is that this year the focus of the industry is on scaling up qualified early stage production systems. This is something that has moved far more quickly than we had thought. Once we have clarity on the regulatory and legal issues this could take off very quickly in more mainstream use cases.”