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Blockchain expands, concerns remain

Blockchain expands, concerns remain

Insurance industry technology alliances are moving forward with their development and deployment of digital ledger technology, widely known as blockchain, in an attempt to realize time and cost savings, experts say.

Some groups have made technical changes and established timelines to roll out applications for use by members and others. But as with previous technologies, there are lingering uncertainties and challenges, including potential compatibility issues with existing systems.

The RiskBlock Alliance started out with the 1.0 version of Canopy in late 2017 built in Ethereum, one available digital ledger technology, said Christopher G. McDaniel, president of The Institutes RiskBlock Alliance, based in Malvern, Pennsylvania. “We learned a lot,” he said, adding that Ethereum presented issues with both security and scalability.

RiskBlock has shifted course, with its 2.0 version of Canopy written on Corda, Mr. McDaniel said. Corda is the digital ledger technology platform from R3CEV LLC, which began as a consortium of banks, but now includes insurers.

“Corda’s blockchain technology was designed to address the specific needs of the financial services industry. It is heavily inspired by and captures the benefits of traditional blockchain systems, but with design choices that make it able to meet the needs of regulated financial institutions,” said Ryan Rugg, global head of insurance at R3CEV in New York.

B3i Services AG, which began as an industry consortium but in March incorporated in Zurich, has moved to Corda from an earlier technology, in this case hyperledger.

Hyperledger “was successfully used as a prototype but we also realized it had some limitations as a platform for operational use. We started looking at Corda and concluded it was a better alternative to grow into an enterprise-grade operational state,” said Paul Meeusen, CEO of B3i in Zurich.

“There’s a really good reason that all of the insurance consortiums out there including us have moved to Corda because it’s really built for the business enterprise. The insurance industry pretty much has chosen Corda as its platform,” Mr. McDaniel said.

Digital ledger technology, generically referred to as blockchain, is being touted as a way to achieve greater efficiency in operations aimed at time and cost savings for insurers and others while improving both information sharing and security among users, experts say.

“Just how the internet changed the world, obviously blockchain has the potential to connect various business ecosystems,” said Sastry Durvasula, chief data and analytics officer for Marsh LLC in New York.

Digital ledger technology is a good fit for the insurance space, Mr. Durvasula said.

“The insurance industry, by nature, has a range of parties involved on a global scale,” he said. “It has a number of stakeholders, and constituents, from the consumers and clients through the brokers to the insurance companies, capital providers, governing bodies and regulators” and vendors. “So it is naturally conducive to digital ledger technology and blockchain because there is a lot of shared information and frictional points and operational issues,” he said.

“You can deploy blockchain internally, but where you’re going to see true cost savings is through connecting multiple disparate parties across the global insurance ecosystem (brokers, insurers, reinsurers),” said Ms. Rugg.

As with any new technology, however, uncertainties remain, one expert says.

“Blockchain technology presents both opportunities and risks for insurance,” said Stephen D. Palley, of counsel with Anderson Kill P.C. in Washington. “On the one hand, a decentralized and ‘trustless’ infrastructure might allow for the development of claims and payment products that reduce friction and automate payment of easy to verify and undisputed claims. On the other hand, this is new technology, often open source, and still in many cases in development. Building too fast on still untested and often misunderstood infrastructure poses significant risk.”

Also of concern was the need to have any new technology be compatible with existing systems.

“Corda was built from the ground up with our members, for our members,” Ms. Rugg said. “Early on, in regards to infrastructure, they made it clear they weren’t going to be able to completely uproot and move to a DLT/ blockchain system and that we would need to have (application programming interfaces) and be able to integrate fully with them.”

In September, RiskBlock rolled out both a 2.0 version of a proof of insurance application as well as a first notice of loss application, Mr. McDaniel said, adding the consortium also plans to expand into Canada and beyond with efforts now underway but no definite timetable.

B3i wants to have its first product, a natural catastrophe excess of loss contract, up and running by Jan. 1, 2019, so that it may be used in program renewals, Mr. Meeusen said.

“One key in the timeline is the January 1 renewal of NatCat products, when many firms renew their annual cover,” he said. “That is the milestone we want to hit. We aim to be ready for companies to be able to renew that in digital form on our platform.”

Experts point to parallels with the emergence of earlier technologies. “You could definitely look at it like the early days of computers,” Mr. McDaniel said. Canopy, “is like Microsoft windows, with applications built to run on top of it.”

Just like those early computers, digital ledger technology may take time to mature.

“While I am long-term bullish on blockchain, it will require patient iteration to work at scale and be useful in consumer-facing applications as well as being acceptable to American insurance regulators,” Mr. Palley said.



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