The industry’s Blockchain Insurance Industry Initiative (B3i) announced a year ago it had developed a reinsurance blockchain prototype for a property excess-of-loss (XOL) contract and asked the industry to help test it. The initial results are in.
Months of testing by 40 insurers, reinsurers and brokers did identify some problems with the platform, which quickly had to be resolved. After all, the platform is scheduled to go live in time for the Jan. 1, 2019 renewal season.
Prototype testing provided an “enormous wave of feedback,” said Paul Meeusen, B3i’s CEO. Meeusen commented on B3i’s progress to date at an event held at this week’s reinsurance Rendez-Vous de Septembre (RVS).
Meeusen was joined by Denis Kessler, chairman and CEO of SCOR, Gerhard Lohmann, chairman of B3i, and a panel of representatives of companies who are B3i “early mover” program members.
At last year’s RVS, B3i presented a use-case and invited 40 companies to test the use-case, said Lohmann. “A year later, we have founded a company [Zurich-based B3i Services]. The company has a product. The product will have clients, and we’re going live with a real product, a real risk exchange, for the 1/1 renewals.”
Aiming to build “the most important risk exchange, based on blockchain technology, in the industry,” Lohmann noted that B3i also has been marketed as an investment opportunity for insurance and reinsurance companies, brokers, financial investors and corporate clients — and as a result, B3i is close to announcing a substantial funding round.
“I should say that the support we’ve been getting from those five distinct…potential investor groups has been enormous,” he confirmed.
Additional funding is required, Lohmann explained, because B3i Services wants to offer blockchain technology for other lines of business, beyond cat XOL, and the company will have operational risks, which need to be funded, Lohmann affirmed.
“We are trying to get this company substantial capital to develop, withstand risk and acquire clients and potential partners in an enlarged network,” he commented.
While B3i has only a few months to show that the platform will work, Kessler said he is confident of success. “This is a big step forward” and will be a significant achievement for the industry.
“[T]he challenge is not just to implement a new technology. At the end of the day, it’s to make our business much more efficient and more affordable,” Kessler added. “I always say, if we want to reduce the protection gap, we certainly ought to be able to produce services, contracts, coverage at a lower cost.”
Blockchain will greatly reduce the administrative burden and all the paperwork that still plagues the insurance industry today, while providing insurers and reinsurers with a clearer line of sight into the underlying risk exposure, he indicated.
“Sorry, but we have no choice. If we don’t do it, someone else is going to do it. I always prefer to be a trend setter and a market maker than to be a market follower, left to follow what has been decided by others.” SCOR is one of the original members of B3i, which was launched in October 2016 to explore the ability of blockchain technologies to increase efficiencies in the exchange of data between reinsurance and insurance companies.
Kessler laughed when he said: “I like an American saying that says: ‘Make dust or eat dust.’ To tell you the truth, I don’t like to eat dust.”
Prototype Testing Overview
Meeusen provided an overview of the prototype testing that B3i began to conduct last year, what it revealed and what actions needed to be taken. Feedback from the testing, in part, showed that the platform needed to allow cedents to create differences in terms across their various reinsurer partners as well as the ability to provide for reinsurance panels with leaders and followers.
Further, because of regulatory requirements, the platform must show that it operates with reliable counterparties, undertakes the proper know-your-customer (KYC) processes, and runs secure and safe transactions, Meeusen explained.
When B3i took the feedback on board and tried to upgrade the platform, it ran into a problem – it hit a wall in December. “We had a hard reminder, an unpleasant Christmas present,” he recalled. “But as often happens with innovation, you need to learn, accept and fail fast.”
The only way around the wall was to change the platform that operated B3i’s blockchain – and, in June, B3i announced it was switching the technology to the Corda blockchain platform, which is supplied by software firm R3.
Meeusen described the remedy as the equivalent of opening the hood and ripping out the engine.
“Remarkably we did not really have to give up on much of the essentials that we had delivered from the prototype,” he said. “We still have smart contracting language that we invested a lot in, together with our partner, ACORD, which is compatible with the ACORD standards.”
The change in the technology “now allows us to have these applications work in a network rather than just in isolation,” he explained.
Also during the past year, B3i began hiring specialists, including a chief product officer (Sylvain De Crom); a chief technology officer (Markus Tradt), and a chief marketing officer (Ken Marke). In addition, the growing team now has a commercial insurance product owner (Antonio Di Marzo), a chief financial officer (John Carolin), a chief operating officer (Philip Proost), as well as a North American representative (Susan Joseph), who will open a New York office later this month.
An important part of B3i’s growth is to create a membership program – to demystify the technology and what it can provide. Meeusen said this membership program will be launched this month and will provide members with information, educational activities and conferences.
* This story ran previously in our sister publication Insurance Journal.