Insurance industry making the leap to blockchainPosted On: Jun. 20, 2017 7:00 AM CST
Blockchain is making inroads into the insurance sector with the announcement of new initiatives aimed at expanding the use of the digital ledger technology.
Last week’s news of the initiative between American International Group Inc. and Standard Chartered Bank P.L.C. was the latest in a recent run of activity around the insurance sector’s potential use for the budding technology.
AIG and Standard Chartered, together with IBM, said they had used blockchain technology to create a multinational “smart contract” by converting a multinational, controlled master policy written in the United Kingdom and three local policies in the United States, Singapore and Kenya, into a format that provides a shared view of policy data and documentation in real-time, allowing visibility into coverage and premium payment at the local and master level as well as automated notifications to network participants following payment events.
Third parties, such as brokers, auditors and other stakeholders, can also be included, giving them a view of the policy and payment data and documentation. The pilot solution was built by IBM and is based on Hyperledger Fabric — a blockchain framework and one of the Hyperledger projects hosted by The Linux Foundation.
Results were promising, according to observers.
“This was a first-of-its-kind pilot that proved the concept,” Carol Barton, head of multinational insurance at AIG in New York, said in an email. “This pilot shows many benefits may be possible with more scaled blockchain applications, including: Immediate access to policy information; reducing query time and effort; visibility into premium payment; coverage at local and master level; and several permissioned access points to policy.”
“This is a wonderful example of an innovative approach to insurance,” said Howard Mills, global insurance regulatory leader at Deloitte Services L.P. in New York. “A global insurer like AIG using blockchain to create a smart contract that will make multinational insurance coverage less cumbersome could be a big boost to global commerce.”
“I think a lot of insurance players are curious about blockchain and they are trying to see how it can work,” said Tracy Dolin-Benguigui, director and sector lead with S&P Global Ratings in New York.
Blockchain is a digital technology for recording and verifying transactions, according to the Linux foundation, which is hosting an effort to build an industry consortium, Hyperledger, to standardize and expand its use.
“The distributed ledger is a permanent, secure tool that makes it easier to create cost-efficient business networks without requiring a centralized point of control. With distributed ledgers, virtually anything of value can be tracked and traded,” the foundation said in a 2015 statement. “Distributed ledger systems today are being built in a variety of industries, but to realize the promise of this emerging technology, an open source and collaborative development strategy that supports multiple players in multiple industries is required. This development can enable the adoption of blockchain technology at a pace and depth not achievable by any one company or industry.”
Munich Reinsurance Co. and Swiss Re Ltd., the world’s first- and second-largest reinsurers, respectively, in October 2016 founded B3i, a consortium “aiming to explore the potential of distributed ledger technologies to better serve clients through faster, more convenient and secure services,” Swiss Re said in a statement at the time. The consortium has since grown to 15 members including Allianz S.E., Zurich Insurance Group Ltd., Assicurazioni Generali S.p.A., Hannover Re S.E., Liberty Mutual Insurance Co., Scor S.A., Tokio Marine Holdings Inc., and XL Group Ltd., which does business as XL Catlin.
Also last week, The Bitfury Group, a U.S. blockchain technology firm, said it had formed a strategic partnership with advisory firm Risk Cooperative to use blockchain in the insurance broking market.
The partnership will initially explore putting cyber insurance and political risk activities on a blockchain-based system, according to reports.
Bitfury has been helping national governments put data on a blockchain over the past two years, according to reports. In April, the company announced a partnership with Ukraine to put a wide range of government data on a blockchain platform. A year earlier, Bitfury signed an agreement with Georgia to pilot the first blockchain land-titling registry.