Monitoring blockchain's advance in insurance

I recently returned from InsureTech Connect in Las Vegas. One of the sessions I found interesting was centered around blockchain emerging developments. Salesforce was represented and talked about the importance of smart contracts and how blockchain technology can facilitate adoption. However, what impressed me most was a very practical application of blockchain.

B3i, the consortium of more than 40 insurers and reinsurers, recently announced that the reinsurance blockchain for property excess of loss (XOL) class of business will be going live in January, 2019. A prototype was released over a year ago which was debugged over time. This will be the first true “risk exchange” for insurers and reinsurers. B3i wants to become for insurance risk what SWIFT is for funds transfer between banks. Cat excess of loss is a good place to start since it arguably deals with less complex reinsurance structures than other commercial reinsurance.

Jason Alden/Bloomberg

Clearly this is only a start; other more complex reinsurance transactions will eventually be moved to blockchain. It makes sense since everyone needs to know what the most current treaty in force is and everyone needs to have a record of transactions against those treaties. In time facultative arrangements will move to this as well, on a policy by policy basis. Claims settlements between insurer and reinsurers could be automated. While blockchain will sit outside of the core systems for insurers and reinsurers, in time the blockchain could be the trusted source for those systems, without redundantly storing information across carriers. Administrative burden across reinsurers will be reduced if this is successful and insurers/reinsurers will get better visibility of overall risk.

A big question for smaller reinsurers will be whether or not to participate in a blockchain. If they don’t or can’t, then risks may not be placed with them by brokers. Essentially these reinsurers may lose access to profitable business at an ever increasing rate over time.

The regulatory “800 pound gorilla” is always in the background. Questions like processes to know the customer, appropriate security, and reliable counterparties must be answered.

One asks, could this be used for other lines of primary insurance business? Perhaps. But the regulatory environment will largely govern that. For example, the immutable nature of blockchain transactions (they can never be erased) means the there could be a conflict with GDPR and the CA regulations which mandate data consent and the right to be forgotten. Can you forget something if you can’t erase it?

Still early days but something to start keeping an eye on!

This blog entry has been reprinted with permission from Novarica.