The industry’s Blockchain Insurance Industry Initiative (B3i) has developed a reinsurance blockchain prototype for a property excess of loss contract—and could be on the cusp of an industry revolution.
Unveiled this week at the reinsurance Rendez-Vous de Septembre in Monte Carlo, B3i hopes that the prototype represents the beginning of a new, more efficient era for the industry.
In October, the blockchain prototype will head into rigorous market beta-testing.
Blockchains, also known as mutual distributed ledgers, are defined as a common set of records of transactions, which are mutual (shared), can’t be changed and are stored in multiple locations with no central ownership. The technology is being touted as a solution to the industry’s inefficient back-office processes.
“After launching the initiative [in October] last year, the B3i members have been seeking to fulfill the huge potential of blockchain with a singular vision: To build an efficient worldwide industry platform for market participants to more easily cede, handle and trade risks,” said a statement issued by B3i.
While the industry sells a highly valued product, the cost of delivering that product to end users “remains stubbornly high,” said James Slaughter, director of global reinsurance strategy at Liberty Mutual and a member of B3i’s steering committee.
“Some commentators estimate that up to 50 percent of the total cost of our product goes on non-risk bearing components,” he told an audience of industry executives and members of the press, who attended the project’s launch.
To overcome such inefficiencies, B3i has been working this year to experiment with and explore blockchain technology— and developing the prototype—”to see if we could standardize and digitize the insurance transaction,” he added.
“With the advent of smart contracts, distributed ledger technologies, and cryptography, we believe we can speed up the insurance transaction through the elimination of redundant and replicated processes, higher speed of execution and greater transparency,” Slaughter added.
Paul Meeusen, Swiss Re’s head of Finance and Treasury Services, explained that the prototype has been taken through robust testing and B3i has observed “efficiency gains in the order of 30 percent, by taking out unnecessary reconciliation, duplication of work and waiting time.” Meeusen also sits on B3i’s steering committee.
The prototype application takes a property cat excess of loss contract, puts it on a shared ledger where terms are agreed in real time. “We see who has signed what line, paid what premium and reimbursed what claim, in one single version,” he explained.
Great Idea with Technology Wrapper
“When people have great ideas and wrap new technology around it, great things tend to happen,” he said, citing the example of Malcolm McLean, a former trucking company owner, who, in the 1950s in America, developed containerization for the shipping industry in response to the inefficiencies he had observed with cargo transportation.
McLean’s containers lowered shipping costs from nearly $6 per ton to 16 cents per ton, a 36-fold improvement. When McLean gave his patents, royalty-free, to the International Organization for Standardization, containers ultimately revolutionized the shipping industry.
Meeusen said he mentioned this story because B3i is “solving a very similar problem” for the insurance and reinsurance industry. “Our mission is to help manage and trade insurance risks better.”
B3i’s aim is “to master our insurance contract data. And like with the container, if we package and standardize them well, trading becomes much easier,” Meeusen continued.
He went on to say that the prototype is scalable and could be enhanced to include reinsurance, commercial insurance and ultimately also primary insurance.
B3i’s tagline—revealed at its launch presentation—is “Less Admin, More Insurance.” The group’s determination to realize that goal and make the industry more efficient was evident from all the speakers’ comments at the event.
Collaboration Is Key
Slaughter noted that the industry has been littered with failed attempts to standardize and digitize the insurance transaction. “B3i is determined not to follow that path, but we’ll only be able to do that if the whole market gets behind us and joins this exciting project.”
The collaborative element of the initiative will be the key to its success, said several industry executives whose companies are supporting B3i, who spoke at the event:
- Christian Mumenthaler, CEO, Swiss Re, recalled, when Swiss Re looked at the possibilities for blockchain technology, “it was very clear to us that this was not something we should pursue as a stand-alone company. It was very clear that the benefit would only come through if we worked together as an industry.”
- Amer Ahmed, CEO, Allianz Re, said: “I think this collaboration model provides the foundation on which we can really build momentum together.” The industry’s participation is vital to the project’s success, he added. “We are really excited to go through the prototype testing to see how we can really bring this to life.”
- Denis Kessler, CEO of SCOR, noted that the industry will share in the “incredible, massive efficiency gains” provided by this technology, internally for companies, for the industry and all its business partners, especially the brokers. “We are going to share the productivity gains, we are going to share those efficiency gains. It will be to the benefit of all of us.”
In additional statements issued this week, other B3i member companies’ executives commented on the project.
Greg Hendrick, president, P/C Insurance and Reinsurance at XL Catlin, said: “To collectively explore how Blockchain can help us be more efficient and better deliver for our clients is in the whole industry’s interest. This is an exciting step for the B3i and a significant leap towards the future for the industry.”
Paolo Ribotta, head of Generali Global Corporate & Commercial at Generali Group, said: “We are excited to witness the implementation of the working prototype that has been developed. B3i is a key initiative in the insurance and reinsurance ecosystem that by joining market forces and leveraging on blockchain technology, could further modernize our industry, streamlining communication and transactions, paving the way to unexplored opportunities eventually.”
In a statement, B3i said the immediate next step for the blockchain initiative is to launch a market beta-testing program for the prototype starting in October 2017.
“All insurance industry participants (insurers, brokers, reinsurers) are welcome to join this testing program,” B3i said. “Existing B3i members and new participants will be able to take part in the test on an equal basis of a common testing agreement. The participants will be granted access to a ‘sandbox’ environment to simulate the creation and settlement of contracts and will be expected to feedback comments and change requests through defined channels.”
The current 15 members of B3i are 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.
The current governance and 15 members of B3i will remain unchanged until Dec. 31, 2017, said B3i, noting, however, that a review is under way to consider creating a more permanent operation within a legal entity in 2018.