Many insurance and reinsurance companies are focusing on operational efficiency to help sustain or increase profitability in the current, highly uncertain marketplace. Many of their processes and system environments seem ripe with potential for greater efficiencies. For example, delays resulting from suboptimal processing caused by iterative communications between internal and external parties often accompany payments and acceptances. As a result, there is typically a need for many hours of manual reconciliations. Reinsurance premium, commissions and claims processing are all areas prone to inefficiencies and therefore dependent on manual reconciliations. Executive SummaryBlockchain is a compelling way to improve operational efficiency and gain a competitive advantage in today’s insurance marketplace, according to advisors from PwC. Here, they provide a brief explanation of blockchain and an example of how blockchain and smart contracts might be used to streamline reinsurance and retrocessional transactions.
Process and data inefficiencies are one of the primary focuses of financial technology, or FinTech. Blockchain, a popular segment of FinTech, is the underlying technology of bitcoin, which is the most popular cryptocurrency. Bitcoin works by facilitating secure peer-to-peer transactions across a network of nodes (or connection points) that are recorded on a distributed ledger.
Blockchain has become significant outside of bitcoin and other cryptocurrencies because it can be used to record transactions of any digital asset or liability, including those that are denominated in fiat currencies such as U.S. dollars. Multiple parties are able to leverage a blockchain-based distributed platform to efficiently and securely execute transactions. Any transaction recorded on a distributed ledger is immutable, and therefore it is impossible to modify a transaction’s history. Thus, for transactions that take place over a network, the distributed ledger is the “source of truth.”