Hosted by Elmore Insurance Brokers in their Lime Street offices last week, a select group of senior insurance experts attended an exclusive roundtable event to debate the issues of Blockchain and its impact on insurance intermediation. Participants represented the views of buyers, Blockchain start-ups, intermediaries and capital providers – sharing their user case experience and discussing the technical opportunities and challenges.
The participants were: Head of Insurable Operational Risks at Standard Chartered Bank, CEO of Blocksure, independant blockchain consultant and London market advisor, Head of Innovation for Tokio Marine Kiln, and Elmore’s Managing Director and Head of Operations.
Below are the main discussion points and the conclusions the group reached.
Current Issues and Advantages of Blockchain Technology
Transaction automation and the future value of brokers
Brokers need to add value to both the buyer and the capacity provider if they are to survive. Briefly, those currently operating as a postbox will be forced out by the new technology. Blockchain technology will make sure that brokers become either super commoditised or super specialised, there’s no space for those stuck in the middle.
The expectation is that all business in broking offices will be transacted and managed on mobile devices, removing the future need for PCs. The key differentiation will come from offering risk management services where the broker, as an independent party, can assess the risk and provide the best insurance coverage. The Blockchain solution really suits this approach and also enables corporates to digitise their own core processes and information systems. Initial user cases have indicated that a digitised form of insurance purchasing works really well. This will mean that the operational support provided by a traditional broker will become less relevant. Holding loss records for example will no longer be a valuable feature.
Various Blockchain initiatives
There are currently various Blockchain initiatives and systems ongoing and the group agreed standardisation is required to make sure Blockchain and its associated benefits become the real business internet. The VHS/Betamax ‘war’ was referenced in the discussion as something that should be avoided. Everyone agreed the single point of truth, automated payments and full reporting capabilities are all benefits that will help the wider insurance industry grow and become more efficient. This gives buyers of insurance transparency but also helps buyers, insurers and intermediaries avoid manual entries and reconciliations. This is especially an issue in complex and international transactions. However, Blockchain delivers the single point of truth and confidence sought by buyers.
IP and interoperability
One of the current issues with Blockchain initiatives is who owns the intellectual property of the new creations. The group agreed that this is a hindrance for a wider audience to join the various initiatives, which will have an impact on its success. Simply put, if you are on the Blockchain with one insurer you want to have the opportunity to find the best cover when renewing that policy next year, which means collaboration and sharing is required between the parties involved. The product should be owned by the person creating it, but the tech should be owned by an independent party, creating the marketplace. Blockchain is still very new and interoperability is required to make sure the final solutions can talk to each other. Ultimately, the numerous users want to read a consistent message and don’t mind the underlying technology (similar to our current internet).
Main user cases for Blockchain in insurance
The main benefits for insurers with Blockchain are straight through processing (cheaper/quicker), and the development of new distribution models via, for example, the internet of things. Compliance checking and holding of client money will become redundant as the Blockchain will restore trust and thereby eliminate manual procedures that were designed to add trust. The user cases that can be created with Blockchain are: large corporates (managing their overall insurance footprint), commoditisation (aggregation of similar type users per insurance product), and real-time, on-demand insurance offering.
Will the open banking regulation next year have an impact on insurance purchasing? A big development has occurred in Africa where small employers can pay their workforce from a mobile, with mobile banking, demonstrating where tech enables growth for SMEs. Blockchain will be able to offer an intermediated solution for insuring high-volume, low ticket size transactions which will eliminate duplication and re-keying of information. The broker adds value by developing the product, aligning the capacity provider and creating the marketplace for retailers to offer high-frequency trading. This will result in new entrants being able to offer innovative solutions at lower costs, challenging existing brokerage models. Extrapolating this to a situation where you can extract KPIs from a business – like asset locations and movement, cyber activity, biometrics, and so on – can then result in real-time dynamic insurance products where premiums are charged based on demand and where annual renewal of policies becomes obsolete.
From a user case perspective the insurance industry is currently missing a trick by not sharing the learnings from user cases. The proof of concept is trialled and tested numerous times over and as a result progress is slow and extremely costly.
Drawbacks to Blockchain technology
– Theft. If the Blockchain coding is not watertight, Value can be stolen if hacked. This is not a major issue for current insurance operation because value is not stored on the blockchain and conventional financial procedures are used to transfer value off chain.
– Requires networking effect to work. The incompatibility of the various Blockchain offerings at present means the market parties need to come together and agree a standard to ensure the technology realises its potential.
Elmore is a specialist insurance broker and risk consultancy, offering advisory, broking and claims management services to businesses across a broad range of industries. A forward-thinking broker, always looking for insurance solutions that can meet the challenges of tomorrow. For further information see http://elmorebrokers.com/