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Insurers test out blockchain

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Insurance industry players have recently produced prototypes and proofs of concept using blockchain technology, which appears to offer many cost- and time-saving benefits but is still a nascent concept whose potential remains to be proven.

This year, American International Group Inc. collaborated with Standard Chartered Bank P.L.C. and International Business Machines Corp. to use blockchain to produce an insurance policy with automated features, or “smart contract.”

“Working with Standard Chartered and IBM, we successfully piloted the first multinational smart contract-based insurance policy using blockchain earlier this year, which provided direct notification of premium payment and policy issuance to the corporate and local stakeholders in real time,” said Carol Barton, president of AIG Multinational and Business Insurance in New York, in an email.

In another example, XL Group Ltd., which does business as XL Catlin, worked with Danish shipping giant A.P. Moeller-Maersk A/S on a 20-week trial designed as a proofof-concept exercise focused primarily on collecting and maintaining asset data that could be shared among multiple verified parties, according to Hélène Stanway, digital leader for XL Catlin in London.

The Maersk product, slated for production release in 2018, also allowed the shipping firm to build its own single asset ledger listing all ships and activities aboard, such as cargo loadings or a flag change, Ms. Stanway said.

Similarly, she added, with a property portfolio, all properties could be listed together with their attributes. The Maersk solution was built with a view toward adapting the technology elsewhere, she said.

Most recently, Allianz Global Corporate & Specialty S.E. built a blockchain prototype for use with captives. The project took four months from inception to the final testing of the prototype, said Alan Cabello, project lead and innovation manager for Allianz Global Corporate & Specialty in Zurich, adding that the captives project was particularly interesting because of its structure consisting of multiple parties and geographies.

“Making sure the money gets from end to end as quickly as possible is extremely important to the customer of the captive,” Mr. Cabello said. “Seeing how quickly we could move and track the money with the prototype was extremely interesting.”

Blockchain has potential to create efficiencies and save on costs, experts say.

“When you look at the insurance industry, there are some basic challenges that blockchain can address,” said Michael Costonis, global insurance practice lead for Accenture P.L.C. in Philadelphia. “There is a raft of operational inefficiencies such as ledger balances and systems of record, which continually require reconfirming and reconciling, and there is really no common indisputable record ... Blockchain will promote transparency and simplify and streamline a lot of the core processes that we have.”

Added transparency also could translate to added trust in the system, some say.

“When you share information jointly on a peer-to-peer infrastructure, you can develop more trust in this information more quickly than in traditional approaches,” said Michael Eitelwein, head of group enterprise architecture for Allianz S.E. in Munich, describing blockchain technology as a “trust enabler.” 

In contrast, current systems are antiquated and inefficient in terms of cost and time.

“If you look at insurance transactions, they really are an electronic replica of the 200-yearold partnership process,” said Anudeep Chauhan, Chicago-based managing director of insurance strategy at Accenture P.L.C. in North America. “It’s very sequential, and people maintain separate ledgers which, as the complexity of the process grows, become harder to track and reconcile.” 

Thus, companies continue to be interested in testing ideas, sources said.

“In general, we believe there is growing interest in experimenting with prototypes,” said Ken Marke, head of strategic futures for Ageas Insurance International N.V. in London, speaking for the Blockchain Insurance Industry Initiative, or B3i. “However, moving beyond prototypes and establishing production-ready applications is less evident.” 

Mr. Marke added that “within B3i, we have traction with new members participating in market testing of our reinsurance prototype. We are aware of increased interest beyond the current members and expect to increase our membership in the next 12 months.” 

The new technology is not without its issues and challenges, however.

“Many clients are looking at prototypes and use cases under laboratory conditions, but there are issues surrounding scaling up, such as the standardization of data,” Mr. Chauhan said, adding that a common data standard does not exist now.

“Blockchain technology is very young, so we do not know the full impact of what the consequences of wide adoption is. We need to understand that blockchain will be just a part of any wider solution, and these solutions need to be fully thought through and designed with security and privacy in mind,” said Marta Piekarska, London-based director of ecosystem at Hyperledger, part of the Linux Foundation, a technology development group.

But the emerging technology is on the minds of many.

“In the last year, every insurance client — every CEO, every CIO — that I’ve talked to, one of the questions that they all ask me is, ‘How concerned should I be about blockchain?’ and ‘How quickly should we move on blockchain?’ So, I think everyone’s thinking about it,” said Sandip Patel, Boston-based global managing director of insurance industry for IBM Global Business Services.