Rank #1: Ep. 23 – Blockchain from an Allianz perspective & lessons learnt
Bob shares his views on blockchain’s effect on the insurance industry and sheds some light on the Allianz approach to blockchain.
Blockchain in two minutes
A blockchain is a shared ledger record of transactions. When everyone in a network agrees a piece of information is correct, it is added to the ledger and the blockchain’s technology links each successive transaction to the previous one. The end result is an unbroken history of transactions that all parties can trust is correct.
Blockchain’s impact on the insurance industry
In August 2017 Bob wrote a blog post titled “how blockchain will impact insurance in 2017 and beyond”, where he examines how blockchain is changing how insurance companies operate on a fundamental level and the way insurers and customers relate in a shared economy.
This refers to the gradual change in which insurers realise that working together to solve common customer pain points requires rewriting the rules of business. Blockchain is the first time competitors have to work together to improve the industry and insurers have to learn to coexist in a world where the means of developing and delivering products or services, i.e. blockchain, require shared development and maintenance.
By working together Bob does not simply mean creating policies and exchanging risk, for which Lloyd’s of London already does a good job. Bob refers to solving more fundamental issues in the low value adding tasks that are a prerequisite for doing business. It is about solving common pain points and creating a customer-centric experience.
Bob’s post also introduces the concept of self-sovereign identity. Data privacy rules are increasingly granting more protection to consumers. Self-sovereign identity, therefore, refers to the way in which people can take control of their data and only give companies the data which is necessary for a product or service. This means that insurers will have to better calibrate the level of information required to provide a service, which will naturally lead to more customer-centric products and services. It is an opportunity for insurers to listen to customers and provide the services they want, in the right volume and in the right way.
If you are interested in Bob’s article, you can find it here.
Allianz and blockchain
Allianz is keen on experimenting with blockchain and Bob walks us through two recent projects.
1. Captive insurance blockchain
Captive insurance programmes, one of the most complicated aspects of commercial insurance, are established by multinational organisations which self-insure instead of purchasing insurance. This entails creating their own self-insurance program which pools together selected assets and insurance exposures from their global operations. They collect premiums from each operating company and pay out claims internationally as they arise. Due to the complexity of self-insuring, captive insurance companies use an insurer to effectively administer the program. Allianz is one of those insurers, having partnered with captive insurance companies to provide administration and compliance services utilising its international network.
Blockchain is integral in making this task simpler. The blockchain network automatically connects all the parties in the programme, including the captive management, the local subsidiaries and the fronting insurer. Any updates or changes to the data are shared in real time across the network, creating a much faster, transparent, secure and efficient means of distributing information, conducting business processing and recording transactions.
But why use blockchain? Since all parties are trusted in a captive insurance model, one could argue that a set of connected databases or APIs will do.
While all parties are trusted, which is often the case with private blockchains, blockchain’s value over existing technologies lies in how Allianz can now eliminate non-value-adding tasks by introducing automated processes to replace thousands of emails and massive data files. For example, smart contracts make the process simpler by automatically ensuring the appropriate pay-out goes out to the appropriate subsidiary.
2. Allianz and Monuma
Allianz partnered with Monuma to create Blockchain Patrimonia, a product that certifies and values customers’ valuable assets. This greatly reduces the cost of valuing specialty items. Instead of having a valuation expert visit customers’ homes, Monuma’s product uses photographs, metadata and blockchain.
The added value of blockchain in this scenario is that the photos can be used concurrently with their metadata. This includes GPS coordinates, image properties and time-stamping. Adding this information on an immutable ledger makes the assessment and claims processes easier. It essentially develops a proof of provenance, which is difficult to accomplish using other technologies.
3. Learning points
A major learning point has been the importance of using blockchain to create a more customer-centric service. As Bob puts it, “when you focus on the customer and solving pain points for them then you have a valid business case for any blockchain related deployment anywhere in the value chain.”
Part of this reasoning means that developing a full end-to-end blockchain insurance system is not a top priority for Allianz. The focus is on the parts of the value chain that can add immediate value by removing low value adding tasks and solving customer pain points. This will increase confidence and credibility in blockchain, making an end-to-end blockchain system feasible in the future.
Allianz and B3i
Another way Allianz is leading the blockchain revolution is B3i, which features in a previous episode and of which Allianz is a founding member. B3i came to be after a group of insurers decided to work together to address common pain points across the industry.
As B3i evolved from a consortium to a startup, so did Allianz’s involvement. It now uses its knowledge to help members get the best start in experimenting with blockchain. Bob points out B3i is not about getting a competitive advantage. It is for the industry and by the industry and its goal is to use blockchain to address industry pain points, help members reduce their cost base and make customers’ lives easier.
Different blockchain networks
Due to all these initiatives Allianz has gathered experience across different blockchain technologies. Its captive insurance program runs on IBM’s Hyperledger Fabric. Monuma utilises the Bitcoin blockchain and B3i uses Corda.
Bob informs us Allianz has no particular preference. It is important for companies to keep an open mind on blockchain and adopt a technology agnostic viewpoint. Different protocols are better-suited to different use cases and the technologies are all relatively new. It is therefore in a company’s best interest to experiment with as many blockchains as possible to better educate itself in blockchain.
Challenges in launching a blockchain product
Despite the rewards of experimenting with blockchain, developing a blockchain product or service comes with its own set of challenges.
1. Funding your project
One of the most important aspects of launching a blockchain project is getting the right C-level sponsor. The most successful implementations of any technology are those where there is investment from the company itself, especially if the company has ensured alignment of the correct resources such as customer service, operations, IT, legal and marketing.
A solid business case is necessary for a project to receive this treatment. The project must solve a problem or improve customer experience. The challenge therein is that the insurance industry does not have a good history of capturing data, such as data on how hard it is to build a policy or how expensive it is to make a claim. This means it can be difficult to compare blockchain’s potential with existing technology.
This is why getting a company to invest in blockchain involves a leap of faith and it is important to sell the vision well enough to get the sponsors onboard. The way to do so is to build confidence in the business case. Bob achieves this using a parallel comparison between the current and the new blockchain inspired processes. By critically evaluating the two processes it is possible to distil a pragmatic view of the benefits of blockchain despite the lack of markers to compare the two.
2. Persuading stakeholders
Another challenge is persuading stakeholders to utilise blockchain. The way to overcome this challenge is education. It is vital for the various domain specialists to understand how to apply blockchain in their own business processes. In Bob’s experience, once companies obtain that understanding they can use it to apply blockchain to their own business.
Advice on starting out
Launching a blockchain project can be tough so Bob shares some advice to get the best possible start.
1. Identify the problem you seek to solve
It is vital to have correctly identified the cause of the problem the project seeks to solve, instead of just its symptoms. Only then can you decide if blockchain is the right tool.
In making that decision, it is important to be intellectually honest and understand blockchain is not a cure-all. The primary objective should be improving customer experience, with operating efficiencies being an almost secondary KPI.
2. Work in your ecosystem
Blockchain is a shared space. A successful blockchain project requires bringing together all the key people that are attached to the idea. This extends to people outside your organisation and includes all the people within their realm of the project’s ecosystem. This means bringing together customers, startups, regulators, universities and more.
Understanding the technology is a minimum requirement. People need to be open to working with startups or universities that have great ideas and partnering with them to bring these ideas to market. It is necessary to leave your ego at the door, work together with others and share the learning experience.
Allianz, for example, partnered with fortiss and the Technical University of Munich. This involved giving postgraduate students real problems Allianz encountered and providing the help and expertise they needed to work on their own prototypes and PoCs and create their own solutions.
3. Get started!
It all begins with taking the first step. Get involved, reach out to your ecosystem, remember blockchain is a shared economy and just get the ball rolling.
Looking at blockchain’s potential beyond insurance, Bob pointed out how the UN’s World Food Program is using blockchain to deliver food to a Syrian refugee camp in Jordan. It is an Ethereum implementation that ensures people in need get the resources they need to survive.
Blockchain makes this possible by significantly reducing the cost of the programme. It’s a great example of blockchain removing complexity from process-based systems and linking to existing technologies, in this case the UN identity database, to make life better.
You can read more about this initiative here.
Bob shares some great insights on blockchain’s effect in the insurance industry and how Allianz is leading the blockchain space.
If you liked this episode please do review it on iTunes. If you have any comments or suggestions on how we could improve, don’t hesitate to add a comment below. If you’d like to ask Bob a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.
Thank you Bob!
Rank #2: Ep. 22 – Fizzy, AXA’s Blockchain Case Study
For today’s episode we are going to Paris with Laurent Benichou, director of R&D at AXA. Laurent will introduce a famous blockchain case study called Fizzy, AXA’s blockchain flight delay insurance policy.
Blockchain in two minutes
A blockchain is a fully distributed database. This means it has no single point of failure and no central managing authority.
Blockchain’s technical characteristics, such as its immutability and cryptographic verification, create numerous convenient features including fast and easy payments, smart contracts and the ability to indefinitely store information.
Fizzy is a fully automated flight delay insurance policy that runs on the Ethereum blockchain and allows customers to get indemnified as soon as they arrive to their destination. The process is fully automated, with a smart contract deciding whether customers are eligible for indemnification. This means no action is required by eligible customers to claim their indemnity.
AXA fully supported Laurent’s idea. Deploying Fizzy, which began development in late 2015, was easy from an internal point of view. This is because AXA is aware of customer pain points regarding flight delay insurance:
- Coverage exclusions reduce customer satisfaction as they can lead to cases where the policyholder is unaware whether they are covered or not.
- Customers do not know when they will be compensated.
- Customers have to provide proof of delay. This is a cumbersome process involving contacting the airline to provide proof and sending it over to the insurer.
AXA was excited to create a product that efficiently deals with these challenges. Fizzy is very transparent with no claim forms, proof of delay or other paperwork involved. These issues are all automatically dealt by Fizzy, which notifies the customer that the policy has been purchased successfully, that it is stored on the blockchain and that compensation has been completed. In that way, AXA tries to create trust between itself and its policyholders.
If you would like to find out more about the process behind launching Fizzy, Laurent has written a blog post which you can find here.
Fizzy’s value proposition
Fizzy’s value proposition for AXA revolves around rebuilding trust in the insurance system.
Despite AXA being a party to the transaction, Fizzy will reinforce trust by ensuring total transparency in making policy payouts. As Laurent puts it, “it’s not the insurer, it’s the smart contract on the blockchain” that will decide whether the policyholder is eligible for indemnification.
This means that unlike traditional flight delay policies, where not every eligible policyholder asks for their indemnity due to the cumbersome process, Fizzy guarantees that every eligible policyholder will be compensated. Laurent is confident that customers will be willing to pay more for that guarantee, a necessary condition as paying every eligible customer means the price will need to be adjusted to retain margins.
Having said that, Laurent is keeping the same margin for Fizzy as for other products (and perhaps even a lower margin for the first years). Fizzy is more about increasing customer-centricity than directly improving AXA’s profit line. In that way, AXA can build trust between themselves and their customers.
We cannot but notice how both Laurent and Stefan from Etherisc (which we covered in a previous episode and provides its own flight delay blockchain product) stress the importance of customer-centricity and using blockchain to rebuild trust in the insurance industry.
2. Learning exercise
Another benefit of Fizzy is that it helped AXA better understand blockchain. Laurent tells us launching Fizzy helped the team develop a better understanding of how mature the technology is and how to successfully use it for other products.
3. Cost reduction?
Unlike other blockchain products, cost reduction is not a priority for Fizzy. Fizzy is all about creating trust and putting the customer in the driving seat. However, we can see how the lack of paperwork makes life easier for every party involved.
As with any new technology, developing Fizzy came with its own set of challenges:
One of the challenges in launching a blockchain product is building a business case. A lot of important aspects, such as projected revenue and cost efficiencies involve educated guessing.
While it was clear that Fizzy could help resolve customer pain points, it also involved a leap of faith. Fizzy’s revenue potential was less clear and Laurent had to do a precise business plan to convince his managers. AXA management understood Fizzy is a completely new product that involves educating customers and distributors and revenue will not be immediate.
Regulations add another layer of complexity. Unlike other R&D projects, in which the development team completes the project and then passes it to another team so that it gets industrialized, finding the correct regulatory framework was a challenge for Fizzy.
The Fizzy team had to connect with numerous entities within AXA to get Fizzy up and running. For example, it had to find out which entity within AXA had the proper licence to sell Fizzy and which entity can get Fizzy reinsured.
The regulatory complexity might come as a surprise as it is easy to see why regulators would love Fizzy: it provides great customer value in the form of clarity and certainty. While French regulators are supportive of Fizzy, what they also want is to ensure it functions in a way that does not endanger the airline and insurance industries. For example, the policyholder should not be indemnified more than the loss suffered. An excessive payout would incentivise people to delay flights.
3. The technology
Another challenge Fizzy faced was the technology. While in theory it is easy to work out the system architecture, providing the full automation of Fizzy was quite complex. Automation, from purchasing the policy to payout, is a continuous linear process that should not stop at any point. However, existing legacy technology means this was not always the case. For example, a server might turn off at night because that worked for previous products.
Laurent informs us that with a good technical team, this is a challenge anyone can manage.
It is arguable that Fizzy could have launched using existing technologies, such as a central database working in combination with a series of APIs. Such an implementation would work with most aspects of Fizzy’s customer-centric layout, such as automatic claims and payouts. However, it would miss the opportunity to add further trust in the relationship between insurer and policyholder by having the smart contract, instead of the insurer, decide whether the customer gets indemnified.
Additionally, while Fizzy is currently limited to euros, Laurent is hopeful that in the future people will be able to pay in Bitcoin and Ether. When customers pay in Ether the smart contract will not only decide that a customer gets indemnified, it will also make the payment to the customer’s Ether wallet. This will make Fizzy even faster and add further trust to the transaction.
Fizzy launched on September 2017, starting out with just a few routes from Paris Charles de Gaulle airport to the US before expanding to Italy. This was not enough to make Fizzy immediately profitable and Laurent is currently looking at creating partnerships.
Potential partners include online travel agencies, airports and travel apps. Fizzy made the first test with a partner this summer. This helped scale the product, which has already sold around 11,000 policies, making Fizzy the top user of the Ethereum network. We’re glad to see Fizzy giving the CryptoKitties a good run for their money!
Fizzy in the Ethereum community
With Ethereum being a public blockchain, Fizzy is in constant interaction with the Ethereum community. Due to AXA’s size, it was impossible for Laurent to fulfil all community standards right from the outset, such as publishing Fizzy’s smart contract. Despite that, the Ethereum community welcomed Fizzy and has provided Laurent with invaluable feedback on improving Fizzy. The positive relationship between Fizzy and the community stems from the fact Fizzy has the right objectives. It works on a public blockchain, published its smart contract in June and made known its data provider, FlightStats.
Laurent has an ambitious schedule set for Fizzy:
- Add more routes. Fizzy currently covers 16% of worldwide routes. Laurent aims to reach 70% to 80% by the end of the year.
- Expand to more countries. Laurent plans to expand Fizzy beyond France and Italy, aiming to open throughout Europe and in Asian countries.
- Opening a partner portal. Selling B2B is a key aspect of Fizzy so an efficient partner portal is necessary. At the moment Fizzy has an API which allows people with technical expertise to access Fizzy but Laurent aims to make accessing Fizzy easier.
- Allowing people to pay in Ether and Bitcoin.
- Improve Fizzy’s oracle.
- Interact more with the Ethereum community. The community has numerous valuable proposals for Fizzy and Laurent wants to use this feedback to improve his product.
- After establishing a strong presence in the flight delay sector, Laurent sees the potential to expand in other areas, such as weather and agriculture.
Laurent gave us a great overview of Fizzy and how blockchain can rebuild trust in the insurance industry.
If you liked this episode please do review it on iTunes. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Laurent a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.
Merci beaucoup Laurent!
Rank #3: Ep.40 – IBM’s 2019 Insurance Predictions
For this week’s episode, we spoke to Sandip Patel, Global Managing Director for insurance across IBM. Sandip refers to himself as a lifetime practitioner in the insurance industry having worked for PWC and Aetna and IBM within the insurance industry. In this special episode Sandip shares with us what are IBM’s 2019 insurance predictions.
What is blockchain in under 2 minutes?
Sandip reminds us that practitioners in the insurance industry are painfully aware of the friction and the manual cycles that are involved in different insurance processes.
Blockchain is an operating system for establishing trust in the insurance trust. A shared replicated and permissioned ledger technology which allows any participant in the business network and the business process, that they are engaged in across different parties, to see these systems of records. It’s a single system of records, ledger of transactions, with consensus, prominence, immutability and finality.
Blockchain carries the following three characteristics:
- A level of transparency where transactions can be inspected by the relevant parties who have been granted explicit permission to view them.
- A distributed ledger where there is a single immutable prominence regarding where the data came from and where they were actioned. This provides a level trust through every transaction flow through the blockchain.
- A level of audit trail that exists where previous transactions can be confirmed as having happened providing a level of trust in the entirety of the transaction.
IBM’s 2019 Predictions
Sandip detailed out IBM’s 2019 insurance predictions around three key points:
- New Digital Ecosystems
- Customer and ecosystem interactions to create a differentiated brand
Digital transformation in insurance: Data is the new natural resource
There is a fundamental shift in how we think of data. Where data is becoming the new natural resource, particularly in insurance from a few perspective:
- Volume of data: The nature of data is changing. The rate and pace at which data sets are evolving is growing exponentially. Data sets are going to keep growing to petabytes level and more with which the insurance industry is going to have to deal with.
- Type of data: The nature of data both structured and unstructured is fundamentally changing. 60 – 70% of the data sets such as from wearables, sensors, and drones, often referred to as unstructured data sets since most computers haven’t yet been exposed to such type of data sets.
- Temporal factor of data (relevance). There are data sets which are being created which loose relevance within a few nanoseconds of being created.
The shift requires insurers to fundamentally rethink how to think about data. Traditionally insurers have thrived and excelled in capturing, storing and owning large volumes of data about their customers, products, risk factors, historical events…etc. In the future there are going to be very relevant data sets such as sensor data which informs certain risk factors at the point of time they are created where the paradigm of data is going to be how quickly are you able to capture the data set at the point of creation and enable some decision making based on certain risk factors.
Competitive advantage in the insurance industry today is defined by an insurer’s ability to leverage all this data – structured, unstructured, owned, bought, rented, accessed on demand – and drive insights at scale to proactively find new customer segments, gain early insights into customer needs, and quickly innovate products that blend traditional risk products with insightful risk advice and preventive services.
New digital ecosystems
The second paradigm shift that is happening in the insurance industry is around the new ecosystems that are being created. These ecosystems require the players within them to operate in a fundamentally different manner with their customers and partners to identify revenue and profit goals within those ecosystems.
Customer and ecosystem interactions to create a differentiated brand
In a digital world customers expect insurers to interact with them directly. This of course can be challenging to the insurance industry which is traditionally accustomed to having intermediaries. However, this digital world requires a fundamentally different mindset on how you structure those points of interaction. These points of interaction represent an opportunity for insurers to create a brand about themselves that is different to the one they traditionally played where their only point of interaction was around paying claims when something bad happened.
The ability for insurers to rethink their brand through hyper personalisation, demonstrating an element of service that is at par with other digital interactions a customer has with other companies. Create a level of perception that an insurance company isn’t here to simply pay out claims but is here to proactively pre-empt those claims and help to protect a level of trust with them.
In a data-rich environment, a segment of the insurance business will shift from pricing and managing the risk of loss to pricing and managing the risk of prevention, including monitoring and preventative services that will define competitive parity.
You now have the ability through data sets and through ecosystem partnerships to actually offer new products advice, and services where you start to change your brand to customers. Someone that is able to partner with customers to help them prevent losses before they actually happen.
Challenges of the insurance industry in realising those predictions
Whilst data has been booming in the last few years producing more data that has ever been produced, the manner in which the insurance industry uses data to price and analyse risk is based on historical data. The insurance industry doesn’t seem to have embraced real time data for real time pricing and even less for predictive analytics for anticipating future risks.
Traditionally the insurance industry has been about capturing data, storing it and analysing historical data. That approach though is going to be too costly for a single insurer to capture, store, and analyse all those data sets, even for historical purposes. Insurers are looking for partners, such as IBM, that can curate large volumes of data and make it available in a consolidated form at the point of decision making to take advantage of driving predictable models to prevent risks or to create a whole new breed of products.
In a world that is increasingly connected with autonomous cars, connected homes, and individuals with wearables we will start to look at insurance models where the technology and capability will exist to both create predictive models for how you price and manage risk. Additionally we will see new insurance products that can be both dynamically priced and managed based on how you can predict certain risks and proactively prevent them and monitor them.
German Insurance Association
To provide more detail to the above, Sandip provided us with an example regarding the importance of coopetition and the creation of non-traditional ecosystems through partnerships within the industry. IBM is doing some work with the German Insurance Association and Bosch that produces sensor devices that can be plugged into the cars. Working with Bosch and the German Insurance Association they have created a service called Ecall4all. The German Insurance Association requires its participating insurance companies to offer this device to their car insurance customers. If there is an impact to the car that the sensor detects it sends out an alert that is monitored and analysed by IBM. IBM will then send an alert, based on the GPS location of the car, for roadside assistance.
Blockchain will become a fundamental part of the core operating processes. IBM’s chairman, Ginni Rometty “What the internet did for communications, I think blockchain will do for trusted transactions” (read more about her view on Business insider)
The initial uptake of blockchain in the insurance industry has been around processes with high level of complexity and manual intervention that need to be automated. Additionally blockchain is useful where you have multiple parties across multiple geographies where it is impossible to know something happened with a level of trust and of provenance. That is where we have seen blockchain begin to become relevant because there is an immediate ROI benefit by simply taking the manual friction, compliance and regulatory issues out of the equation.
However as insurers start to increasingly invest into blockchain they start to realise that it can help them re-establish the provenance, transparency and trust that is needed within the industry and our ecosystem partners.
Sandip has provided some excellent predictions on the challenges and opportunities the insurance industry will face in 2019.
If you liked this episode, please do review it on iTunes – your reviews make a huge difference. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Sandip a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.
Rank #4: Ep.48 – Are public blockchains suitable for the enterprise world? – Insights from R3
For most firms getting a good understanding of what is blockchain and its possible use is a challenging exercise. Once that has been established a further decision has to be made regarding whether or not to build their blockchain solution on a public or private blockchain system.
Within the first two weeks of January 2019, both the public and private blockchain proponents expressed their views on the merits of their systems. For this podcast we had the pleasure of having Richard Brown, Chief Technology Officer at R3, the builders of Corda, a private blockchain system, express his views.
Who is R3?
R3 is an enterprise software company that produces an open-source blockchain called Corda. Corda was first launched in 2016, initially for financial services sectors, mainly banks. However, it was the insurance industry that helped broaden Corda’s view and utility as a blockchain for other industries. Now in 2019, Corda has launched the 4thversion of Corda which has already been adopted by finance, insurance, healthcare, government, and the oil and gas industry.
What is blockchain?
What is interesting to know is that in the early days of R3 they didn’t begin with the ambition or the intention of building a blockchain platform. R3 began as a collaborative exercise between a large number of large firms to try and figure out what is blockchain and what the opportunities and implications it might have.
The conclusion they came out with regarding “What is blockchain?” is that blockchain is a technology or an approach to building systems that allows multiple parties who want to transact, but who don’t fully trust each other to do so in a way that allows each and every one of them to know what they see on their computer is exactly the same as what their counterparts sees on theirs. This massively drives down duplication costs, errors, inconsistencies and the need for reconciliation which allows firms to focus on solving business problems and transacting with their counterparts. Essentially, once you know what you see is accurate, that you know the information you’re working on is correct, you can make decisions more quickly and with more confidence.
Busting the myth of private blockchains – Consensys
On the 3rdof January an author at Consensys, an Ethereum based blockchain technology company, published a blog post entitled “Busting the Myth of Private Blockchains”, whose main point was to explain why enterprises shouldn’t use private blockchains in business:
Business networks need resilience, interoperability, permissioning, and privacy to succeed. These requirements, however, are out of scope for proprietary distributed ledgers, let alone traditional database technologies. The Ethereum blockchain’s granular privacy layers and public-first approach make it a powerful enterprise solution for organizations that need the flexibility of an in-house platform and that want the global reach to participate in economies of scale.
The Rebutal – Busting the myth of public blockchains for business
On the 14th of January, Richard wrote a blog post “Busting the myth of public blockchains for business”. In this blog post he debunks three of the main arguments the Ethereum community makes on why business should build on Ethereum:
- Ethereum has the largest community of developers. For any firm new to blockchain deciding which platform to use can be complicated. A common argument used by the Ethereum blockchain community was to go to the platform with the most developers.
- Ethereum has the most advanced tools and the best technology. This argument essentially builds on the first since Ethereum has the largest community of developers.
- Anchoring your private transactions onto a public chain is more secure. Public chains are more immutable than ‘insecure’ private networks and so you should ‘anchor’ your private transactions to prevent malicious parties rolling back your transactions behind your back.”
What is meant by “anchoring” isn’t quite clear, Richard’s interpretation of it is that you take a fingerprint of a snapshot of the private network and then embed that fingerprint into the public chain. The idea being that as long as that fingerprint is in the public chain it will remain secure no matter what happens to the private chain.
Debunking – Ethereum has the largest community of developers
The Ethereum development community claims there are about 250,000 Ethereum developers. Presumably this is the number of people who can code using Solidity, the language in which almost all Ethereum apps are coded. Richard estimates that the number of downloads of the Solidity tool is around 500,000.
Corda runs on the java virtual machine. There are as of today about 12 million java programmers in the world from a base of 250 million downloads of the java development tool set. That’s a factor of 1/20 between actual java programmers to individuals who have downloaded the tool set. If we take that same factor and apply it to the number of solidity downloads of 500,000 you end up with 25,000 solidity developers instead of 250,000.
Richard is quick to point out that he doesn’t want to dismiss the efforts. Java has been around for a very long time whilst the Etherium community is far newer and have achieved some phenomenal things such as getting a production network online.
Debunking – Ethereum has the most advanced tools and the best technology
By building onto the Ethereum blockchain you will inherit and benefit from all the innovation that happen within Ethereum. Richard’s debunk mainly focused on the Ethereum Virtual Machine (EVM). A team from Kadena documented, the EVM is “fundamentally unsafe” And the team at Aion also independently reached a similar conclusion and have written eloquently why they didn’t use the EVM and chosen the Java ecosystem instead.
To top it off Ethereum is due to move away from EVM to something called eWASM or if you want an EVM 2.0
EWASM is just ethereum’s version of the WASM (which stands for WebAssembly) code, created by the World Wide Web Consortium (W3C), the team of developers responsible for maintaining and standardizing the web. – Coindesk.
Richard’s point was that whilst companies who may be developing on the existing EVM run the risk of finding themselves left behind when eWASM launches, and having to deal with potential compatibility issues. Richard would recommend any firms looking to develop on blockchain should pay attention to that platform’s roadmap and the compatibility promises of that platform.
Corda uses the java virtual machine which is used by million of developers and has developed an extensive collection of libraries. Equally the Hyperledger Fabric, which is written in Go, has a million developers.
Debunking – Anchoring your private transactions onto a public chain is more secure
The way public blockchains, like Bitcoin and Ether, work is through proof of work. Miners are people who spend significant amount of computational power and energy to solving difficult problems. The reward for solving that problem is that they get the chance to propose the next block in a blockchain and in so doing get a reward of some bitcoin or some ether. This however is an inherently probabilistic process. This is because, two miners may find the same solution at the same time and only the longest chain will win out. During that period of time when the longest chain is identified there is a period of uncertainty as there is a nonzero probability the transactions that look as though they have been confirmed may get unconfirmed if they were built on the smaller chain.
The trap many people have fallen into was that there’s some number that’s for all intents and purposes is safe. Whether that is six, twelve or fifty levels of confirmations (ie. new blocks added to a chain) that the chance of a reversal is effectively zero and of course that’s not true.
On the 7thof January,Ethereum Classic, got a “51% attack”, were up to 100 blocks were reversed – Coin Telegraph. What this means was that all transactions that happened within those 100 blocks, that may have been safe and confirmed, became unconfirmed. To make matters worse the attacker was able to execute a double spend.
What is important to remember is that Ethereum main net (ie. Ethereum proper and not Ethereum classic) is much larger than Ethereum Classic and is thus less prone to a 51% attack.
Richard’s point though is that this can happen and if the probability is nonzero firms need to make sure that their business process and the way they design their application take that point into account. Additionally, the public blockchain sphere is one of anonymity whilst in business blockchains you need to know the identity of the entities who are forming the consensus such as the notaries in Corda. You want to know who is providing your firm’s transaction finality.
How to avoid collusion in private blockchains?
Public blockchain communities point out to the risk that key players within a private blockchain may choose to collude between each other and rewrite a block and impose it on the rest of the participants.
On the Corda blockchain, they have set up the Corda Network Foundation (this was discussed in Ep.47 – Building effective governance in a blockchain ecosystem – insights from Corda Network). The key about the Corda Network Foundation is that it is responsible for the governance of that network and it is not controlled by R3 and it can’t be taken over by any one entity or any two colluding entities. In a subsequent release version of Corda and of the Corda Network there will be segregated sub zones where firms can run mini private networks within the main network.
Richard emphasize the need for a clear governance framework, a verting framework, a way to check that the right algorithm is being run. There is the need to deal with dispute resolution, the need to know who to serve legal notices. It is important to accept upfront that these are problems that have to be solved and plan for them rather than just making that claim that miners will resolve those problems.
Thank you Richard for sharing your views on why public blockchains aren’t suitable for the enterprise world. If you liked this episode, please do review it on iTunes. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Richard a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.
Rank #5: Ep.47 – Building effective governance in a blockchain ecosystem – insights from Corda Network
Often not considered as “sexy” in the blockchain world, but building effective governance is probably one of the most important tasks in building a resilient blockchain ecosystem. For this podcast we were very privileged to have James Carlyle, Head of Network and Operations at R3.
What is blockchain?
Blockchain is a distributed ledger system that makes a fundamental promise which is “what I see, is what you see”. The idea being that although people share a common view, they actually have their own copies of data and that matter for numerous reasons such as the one of control. . It means with a copy of their own data and the promise that what they see is what the other side sees, that they don’t need to rely on intermediaries.
What is governance?
I always say if you haven’t figured out who is in control, it’s because you haven’t been looking hard enough; there is someone there
Governance is about control first and foremost. What had initially attracted James to Ethereum was the idea of an unstoppable world computer where no one was in control. The initial bitcoin and Ethereum community were people who believed in small government or not government and perhaps they thought that these systems came without control. However James view is “I always say if you haven’t figured out who is in control, it’s because you haven’t been looking hard enough; there is someone there”.
R3’s initial governance for running a consortium
In R3’s early days it was solely focused on running a consortium and the consortium was there to explore how blockchain technology could be used in finance. Right from the start R3 set out to encourage participation and collaboration, which is absolutely fundamental for blockchain, and thus governance became important from the very start.
In its early days R3 had a steering committee that decided what it should focus on. A steering committee had representation from every one of the 42 initial bank members of R3. One of the first things the steering committee decided to do was for example to set up an architecture working group and the architecture working group had its own governance.
The architecture working group’s governance was comprised of leading and chief architects from banks thinking about the right technology choice for distributed ledger’s in banking. But governance has always mattered with these collaborative and heterogenous groups.
The Corda Network
When Corda was first designed its founder imagined a platform in which people could use Corda to manage agreements with each other for any business between any businesses and at any time… ie. the corda network. This can be thought of as an internet of Corda nodes. Corda nodes that are connected together and across which business transactions can take place.
In the initial days of Corda most groups of banks and other companies wanted to deploy their blockchain software together in the form of many consortiums who weren’t necessarily connected. Corda’s original vision of a corda network couldn’t be achieved in this manner. The reason is because each network per application has its own boundary of trust and that means that what happens in that network is trusted within the network itself, but it isn’t trusted by anyone else. Each network has a “trust route” where all of the digital signatures and so on can be traced back and it’s not possible easily at least to bring the advantages of blockchain across the boundary of one network to another.
That’s because the provenance for example which is supported by things like the digital signatures and the hash chains and everything else, that provenance doesn’t move across boundaries very easily.
If we take the analogy of two villages who want to trade with each other. In the real world what they need is a common trust boundary and that trust boundary is provided by things like language, a set of laws and currency. For example, they can trade together, two villages can trade together if they know a common legal process and a common set of laws that bind them.
The Corda Network is here to create a larger trust boundary that surrounds multiple business networks. Where it defines a number of things that they have in common, such as common rules. Example of common rules are technical aspects. They’re technical parameters of Corda and one example is the maximum message size. It is defined as a standard for the whole of the Corda network and business networks that operate within that accept that common definition, that common standard and it means that when they transact with each other one of them is not going to get surprised when it receives a message that’s much larger than it normally is used to working with. So that’s an example of a technical parameter which the Corda network defines as.
Governance models’ inspiration
James recognises that governance has been around for a long time and there exists a lot of examples on which to draw up and learn from. He draws a clear distinction for Corda that is different form the world of permissionless blockchain systems like Bitcoin and Ethereum.
Corda operates within a legal framework. Corda smart contracts would have a legal prose equivalent and there would be a jurisdiction that governed those existing agreements in the existing legal prose.
Bitcoin and Ethereum
In Corda, its members were expected to understand the identities of their trading partners. There was no sense of a sort of anonymous trading between parties as you’d expect from permissionless blockchain systems.
James and his team did look at Ethereum and Bitcoin in guiding their technical designs for Corda. They also looked at the governance of those systems. However, a lot of their governance seems to have an implicit governance model where decisions are influenced by politics and influence.
For the Corda network they wanted an explicit governance model. One where decisions were made according to a defined process. Decision-making was transparent, the principles and goals of the governance model were explicit that everyone could see and reason with.
ICANN became a source of influence both by its simplicity and by how concise its governance model was. The initial set of Corda Network governance guidelines were initially modelled toICANN’s governance guidelines.
Additionally the Corda Network looked at the Hyperledger project, Linux Foundation, SWIFT and OPEX to name a few.
Corda Network’s governance – independent or part of R3?
As blockchain systems are deployed in the very heart of enterprise organisations. They’re often used in order to avoid things like reconciliation and in order to make the sort of cost savings real, organizations themselves need to redesign their business processes when deploying blockchain systems. That takes time. It means the deployments become long-term deployments and that means that organizations that are going to use a network have to trust the long-term nature of that network. So, stability is really important. Stability around things like access and pricing. The participants will want to know that they’re not going to be adversely affected by a pricing change in five years’ time.
James and his team felt that the only way really to provide that assurance and given that R3 itself is a commercial entity, profit-seeking entity is to set up a separate entity to govern the network, to ensure that governance is transparent, its democratic. The participants on the network have a say in how the network is run and have a say over things like pricing.
That separate legal entity would have a board of directors and participants would vote for the board of directors. So, they have a say in who represents them, and the board directors are then free to make decisions about the nature of and the running of the network
This of course imposes certain requirements on R3. It requires that R3 doesn’t seek to control the new legal entity. It requires that R3 understands and believes that the success of the network benefits R3 as well. Even if R3 doesn’t profit from the network. Participation costs to the Corda Network have been brought right down. The entity that governs the Corda Network is a not-for-profit entity so that the fees that are charged to participants exactly mirror the costs of running a few technical services.
Corda Network’s governance model
So, we want it to be transparent, we wanted to be cost effective, we want it to be stable.
Prior to launching the Corda Network, there was a lot of consultations done with business networks, application vendors and consortium that want to use Corda and the Corda Network. The feedback received from these consultations was used in fine tuning the policies and proposed rules.
The Corda Network aims to be transparent, cost effective, and stable. But yet flexible to change. Because they recognises that they won’t necessarily get it right first time and they want it to be fair and open.
The board of directors has control. It votes on things through a series of what are called – governance events, and these can either be mandatory or advisory or in extreme cases constitutional governor incidents where the nature of the foundation itself can change. The participants on corda network hold an identity. They are issued with certificate that represents their identity and that’s what they use when they transact with each other and the model was set up is as simple as possible. That is that one legal entity, where an identity corresponds to a vote of one vote. So that means that voting for directors for example, which shall happen on an annual basis, is very straightforward and the directors that receive the most votes receive take the open seats that are available to them.
Continuity is managed by a set of measures. In the steady state there is a rotating board where three seats are up for election every year with each seat lasting for three years. This means that the board doesn’t get replaced in its entirety every year and people are able to work over a three-year period to implement change and ensure continuity.
There are some protections in place around control around making sure that it’s fair. For example the board for example cannot be populated solely by people who work in banking or in any one industry or in any one continent. They didn’t want the board to be populated solely with people from Europe.
The controls state that there should not be more than three directors from any industry, not more than three directors from any continent, not more than three directors from large or very large organizations. This ensures diversity in terms of the organization size that is represented.
An additional point that is very important is that the Corda Network wants directors who are passionate about blockchain technologies and whom understand the political and governance issues. They want people to vote for individuals. Because it’s individuals that have passion and skill and so directors are invited to come forward, to be nominated or nominate themselves and describe why they think they would make a good director. Participants with a vote can then vote for individuals instead of organisations.
Transparency, clarity of rule and determinacy is incredibly important, which is why they set up a separate entity, the foundation.
The foundation is the independent entity. The foundation is a not-for-profit, it has a board of director structure, that it had the concept of participation and could accept a sort of voting arrangement. The UK law firm Clifford Chance, proposed a Dutch Stichting. The stitching is interesting, because it has no owners. As there are no owners and therefore there is no profit and there is no profit distribution or dividend.
The Stichting has a board that make the decisions and with the majority vote things get changes. It is based in Holland and is a Dutch legal entity.
A set of safeguards have been put in place that benefit all of the participants of the network.
One of them is that the foundation can’t be sold. Another is that the foundation cannot change its role to manage something other than corda network. These safeguards are baked into the articles of association.
Top tips in setting up a governance structure
For James, tip zero is to be completely clear about you know what the objectives are for the thing that one is applying governance to. The first tip would be not to ignore it really matters and it’s not as sexy perhaps as writing software. But it’s probably or possibly more important ultimately. It’s important for the adoption of things. So that’s tip number one is to take it seriously and to recognize that it takes time and it needs communication. It needs lots and lots of feedback and discussion to get it right. Because it can’t be too opinionated. That’s perhaps the second tip. The third tip is actually to be bold. Being opinionated helps. Because it helps to get a straw man out there that people can debate and that sometimes takes the work of this very small group of people to put a straw man together. It helps tip number four is to look around and look at what other people have done and try to figure out what can be reused and not try and ignore everything else and start from scratch. Because probably that will just take more time. Governance models have evolved with parliament and democracies and other political systems over thousands of years and human nature doesn’t change that fast.
Thank you James for sharing some great insights on how to build effective governance solutions within a blockchain ecosystem. If you liked this episode, please do review it on iTunes. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask James a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.
Rank #6: Ep.25 – Unlocking the future of blockchain in emerging markets
Today with us we have Susan Holliday, Principal Insurance Specialist at the International Finance Corporation (IFC), all the way from Washington DC. Susan has over thirty years of experience in the insurance industry and specializes in insurance and insuretechs. We will be discussing how to unlock the future of blockchain and the opportunities for insurers in emerging markets.
Blockchain in two minutes
While there are different blockchains with slightly different features, blockchain is centered around two key features:
- It is a distributed ledger. This means it has numerous nodes and, if one part of the blockchain experiences an error, the rest of the blockchain remains operational.
- The transactions are processed in blocks. Each block is linked by a hash (a cryptographic function) and is immutable. This means it is completely transparent and users can trace every transaction.
The International Finance Corporation
The IFC is the World Bank’s private sector arm. It is government-funded, with nearly all governments of the world being shareholders of the IFC. Its goal is to invest in emerging markets to alleviate poverty and increase shared prosperity. It achieves this by considering both the financial returns and the developmental potential of a prospective investment. The IFC helps companies grow and brings in private sector investment. Following a project’s completion, it exits its current investment and uses the profits to continue its work in other areas.
Insurance plays a fundamental role in achieving the IFC’s goal by helping companies and individuals become more resilient. People can then establish businesses more easily, take on risks and better cope with the financial difficulties of a natural catastrophe or a death in the family.
The IFC works within all classes of insurance. It has invested in commercial line companies, reinsurers and personal line companies including non-life, life and health. Insuretechs are also becoming an increasingly important part of the IFC’s portfolio.
Insurance penetration in emerging markets
One of the challenges of emerging markets are the very low insurance penetration rates. While there are protection gaps everywhere, insurance penetration, which is measured by premiums versus GDP, is typically lower in emerging markets.
There are three main reasons emerging markets have low insurance penetration rates.
1. Natural catastrophes
Some emerging markets are exposed to various natural catastrophes for which they are largely uninsured. This is an increasingly big problem and the IFC is actively looking to provide solutions to climate risks. However, this is not the root cause as countries with a higher insurance penetration can also have a high catastrophe exposure.
2. The insurance trust deficit
In many emerging markets people are either unaware or distrustful of the insurance industry. Some of this distrust stems from historical examples of companies writing business with no intention to pay out valid claims or intermediaries who defrauded clients. Part of the blame, however, rests with the current state of the insurance industry. Products developed over fifty years ago are not well-suited to the needs and day-to-day problems of people in emerging markets.
The solution to this is customer-centricity. Companies need to pay more attention to the needs of clients to develop new and better-suited solutions.
Disposable income is, on average, lower in emerging markets. This means coverage and premiums would be small, which doesn’t sit well with insurers’ high operating costs. Even where claim ratios are low, high operating costs and too many middlemen lead to disheartening results for insurance companies.
The IFC is trying to change that by investing in fintech and insuretechs to create new products that can be delivered in a cheaper, more efficient way. By investing in new technologies such as blockchain, artificial intelligence and machine learning the IFC hopes to automate parts of the insurance process so that insurers will be able to handle high-volume, low-margin business.
Opportunities in emerging markets
Emerging markets are ripe with opportunity for insurance companies. Unlike other markets, it is about growing the industry rather than fighting for market share.
1. Underserved population
Most insurance in emerging markets consists of larger companies that provide insurance for themselves and their employees. This leaves a large gap of underserved potential customers. Emerging markets have a lot of SMEs, which are often too small to have group policies. There is also a large informal sector where people are, in essence, self-employed. Both these groups have traditionally been hard to reach and provide the right product for.
There are also some particularly underserved markets. Susan is involved in a project aiming to provide better insurance offerings for women, and in particular women-led SMEs, demonstrating the financial inclusion aspect of the IFC.
2. Leapfrog potential
While there are great examples of emerging markets efficiently using technology, such as Kenya’s M-PESA, emerging markets are still behind in adopting technology.
The advantage of this is that emerging markets can more easily adopt the technology best-suited to their needs. In a previous episode, Bill Pieroni, President and CEO of ACORD, talked about how legacy technology can be a challenge in adopting new technologies. In emerging markets, however, insurers, don’t have to go through all the old business models. In many cases, the people in these markets have never had a landline or a personal computer. This isn’t stopping them from innovating and cheaper smartphones are making innovative services accessible to a wider portion of the population. For example, consumers in India can transfer money using WhatsApp.
This potential has created the opportunity of building the insurance companies of the future. Insurers can skip some of the evolution US and European industries have gone through and cater specifically to the needs of emerging markets.
How can blockchain help unlock emerging markets for insurers?
Blockchain is well-suited to simplifying aspects of insurance involving multiple parties and can help insurers access emerging markets.
Due to the large number of parties involved, including a bank, the client and other intermediaries, bancassurance can be complicated and unnecessarily costly. Blockchain can simplify this process and make bancassurance more cost-efficient.
2. Health insurance
To create health insurance policies which are affordable and cater for emerging markets, the whole value chain needs to be readjusted. This includes patients, customers, doctors, hospitals, pharmacies, insurers, clinics and more. Susan believes blockchain is the right tool for the job and that it will have the biggest impact in health insurance.
3. Parametric insurance
Blockchain and smart contracts are great for handling real-time information and automatic payouts. Examples of parametric insurance include weather events and flight delay compensation.
Blockchain’s traceability could be a way of reducing fraud and making public records more accessible. Many emerging markets have no public records databases. Putting public records data on a blockchain would make it easily accessible and reduce transaction costs. For example, the details of cars, their license and insurance policies could be easily accessible to all insurance companies in a market.
Another important application of blockchain’s traceability is healthcare, where it can improve the supply chain management by tracing the origins of pharmaceutical products. There have been scandals in numerous emerging markets in which expired medication had been provided to consumers. Without blockchain it is often very difficult to trace its origin and find the party at fault.
It is easy to assume people will automatically trust blockchain. Insurers must be careful, however, especially in the beginning. In markets where insurance is already met with distrust, blockchain can be seen as an added complication. Susan believes companies shouldn’t make blockchain a big selling point to the consumer. It is the better service and customer-centricity blockchain provides, not the blockchain itself, that can increase trust in the industry.
“Micro-insurance”, which is becoming increasingly popular in emerging markets, can actually refer to two different types of insurance.
- The original use of the term refers to low-value insurance for people with lower incomes, similar to how microfinance refers to low-value loans for people with lower incomes.
- It can also refer to very short-term, on-demand insurance. However, it is important to remember that the distinction can be sometimes hard to draw. For example, a customer might require low-value, short-term insurance to travel to a different city.
Blockchain can help facilitate both types of micro-insurance. Smart contracts (about which you can learn more here) can make low-value insurance more efficient and reduce costs, making it a more attractive offering for insurers. Blockchain can also improve on-demand micro-insurance by utilising real-time information in combination with smart contracts to create a more efficient service.
Blockchain use cases in emerging markets
Susan was happy to share some of the blockchain use cases she has encountered working in emerging markets:
- Bluzelle is a company working with insurers to create real-time claims processing.
- Galileo is creating a blockchain ecosystem which includes banks, insurers, reinsurers and service providers.
- StaTwig is focusing on supply-chain management, integrating blockchain with IoT.
- Inmediate, which features in one of our previous episodes, is the first digital broker in Singapore. They operate a b2C platform for retail insurance and a b2b insurance technology distribution business.
Blockchain: the way forward
Blockchain is here to stay and has lot to offer to the insurance industry. However, some issues need to be resolved before unlocking blockchain’s full potential.
Blockchain is still a buzzword. While people are learning more about blockchain every day, “blockchain” is still thrown around too much without people fully knowing what it means. The insurance industry must experiment with blockchain and educate itself to use it in the most efficient manner.
2. Narrowing down the options
Blockchain is still a rapidly evolving space. Insurance companies are experimenting with different implementations and there is still a debate about whether blockchains should be open, closed, permissioned etc. This is necessary so that blockchain can improve and insurers can learn what works best for them.
However, the industry has to narrow down its blockchain options to a smaller number of models and market winners before blockchain’s wider adoption. Smartphones, for example, primarily use Android and iOS. It is not realistic or efficient for insurance companies and their clients to be working with a vast number of different blockchains. Groups like B3i and the RiskBlock Alliance, which both feature in previous episodes, are working on this by consolidating the market and making cooperation easier.
Which blockchain initiative has caught your personal attention?
Susan is still yet to see her ideal initiative focussing on health insurance, stating the complexity behind incorporating multiple parties as the reason for its delay in development. However, as discussed in Ep.14 – Blockchain use cases outside of insurance with Lee Brenner, initiatives such as MediLedger are showing progress in this space, bringing medical records into the 21stcentury.
Susan provided a great analysis of blockchain’s potential and the opportunities for insurers in emerging markets.
If you liked this episode please do review it on iTunes – your reviews make a huge difference. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below.
Thank you Susan!
Rank #7: Ep.26 – Insurance Regulatory Reporting using Blockchain – AAIS introduce openIDL
In today’s episode we focus on insurance regulatory reporting with the American Association of Insurance Services (AAIS). With us we have Joan Zerkovich, Senior Vice President of Operations at AAIS. Prior to the AAIS, Joan worked in information technology, with over twenty years as a CIO specialising in building large infrastructure systems.
Joan will talk to us about openIDL (open Insurance Data Link), the blockchain-based solution aiming to improve data sharing between insurance carriers, the AAIS and US state regulators.
Blockchain in two minutes
Blockchain is a technology that provides increased trust and security in data sharing systems. It enables users to upload records, data or transactions to a system, which are stored in a chronological order and cannot be modified or deleted. The records are encrypted and stored in blocks, with copies of those blocks then stored in the same away across the network. The immutability of the records and the secure storage across numerous computers on the network provides a level of trust and security never before seen in data systems.
Smart contracts are blockchain’s other distinguishing feature. A smart contract is essentially software that checks for specified transactions in the network and automatically executes queries without exposing any more underlying data than necessary. Combined with blockchain’s immutability, this ensures the trust of all parties on the system.
American Association of Insurance Services (AAIS)
The AAIS is the only non-profit, member-owned advisory organisation in the US. As the US insurance industry is regulated on a state (instead of federal) level, the AAIS was formed to provide a common platform across all the state-regulated markets. Joan is here to guide us through the US regulatory framework and how the AAIS helps insurance carriers navigate it.
To begin with, insurance carriers need to request state insurance departments permission to create and rate a new product. After a long approval process, the insurer needs to report to the department once they start writing business. This can be a very time-consuming and expensive process and it can delay a product getting to market by numerous years.
The AAIS employs a countrywide programme to make this simpler across all fifty states. This includes creating common forms and contracts, whose language is set primarily on a national level but is adapted to conform to state-level regulations. Once the programme is approved by the regulator, any member of the AAIS can go through it to write business much quicker, significantly reducing the time and cost involved.
Another feature of the US insurance regulation is that antitrust laws do not allow insurance companies to share pricing and rating data between them. However, the AAIS, as an advisory organisation, can collect policy and claims data from insurance carriers across all states. It then uses that data to to create new products, update loss cost and rating factors and share them back with insurance carriers.
Finally, insurance carriers have to report to state regulators. This is done by providing the data to the AAIS, which aggregates and anonymises it before passing it on to regulators. Overall, the AAIS makes it easier for state-based regulators to serve their communities while also ensuring consistency across all states and improving operational efficiency.
Data collection before openIDL
While data collection, reporting and filing of new products is now digital, data is nevertheless coming from multiple different systems across thousands of insurance carriers. AAIS has to normalise the data, do quality assurance checks and create a coherent data set that can be used for product development and industry reporting.
Traditionally this is done by members submitting their data to the AAIS statistical data management application. This is a web-based tool where members upload the data required for the application to perform quality assurance checks. After going through the checks successfully, the data is transferred to AAIS systems. In that way, the AAIS knows it has clean, aligned data it can use for statistical analysis and industry reporting.
Data sharing and granular data
Insurance carriers are generally not comfortable sharing their granular data, which means collected data is usually limited to the bare minimum carriers have agreed to provide to regulators. State legislatures and emergency response personnel, however, often request state regulators to quickly assess some activity, such as a flood, within their state bounds. This leads to regulators asking for ad hoc reports. As carriers are hesitant to transfer the required data to regulators’ systems due to security concerns, a slow and expensive negotiation process begins.
The results do not meet the needs of any participant. The data does not make it back to the advisory organisation to improve its products and the regulators do not use the data to provide any industry reporting, meaning carriers get nothing in return for their sensitive data. With the current system being unable to meet the needs of today’s complex and sophisticated data environments, Joan informs us it was time for change.
OpenIDL is the first blockchain platform that enables the efficient, secure and permissioned-based collection and sharing of statistical data.
1. Creating openIDL
OpenIDL started out from AAIS asking what is the meaning of being an advisory organisation. It approached the dissatisfaction with the status quo as a business problem, instead of immediately focusing on technology. The AAIS brought together its key stakeholders, along with data providers and the academic community in a design thinking session to discuss how the current process can be improved to solve existing problems. The result was openIDL.
2. How openIDL works
OpenIDL uses blockchain to improve communication between carriers and regulators while also enhancing trust and security. AAIS created a new environment in which the statistical data is stored, along with any additional data requested by carriers and regulators. Additionally, openIDL contains a web-based interface to communicate the need for and the willingness to share ad hoc data.
This was all done within AAIS’ existing framework. While the technology was updated, AAIS did not have to change anything about the way it operates on principle.
3. Enhancing trust and security
Blockchain was fundamental in solving the security issues and lack of trust between carriers and regulators. The data carriers provide is stored on the blockchain network. The way data is stored on the blockchain, ie using encryption and storing multiple immutable copies on the nodes in the network, allows carriers to share the data in a secure manner while retaining ownership of it.
From the perspective of regulators, they can request data on the openIDL web-based interface and offer to provide an industry report in return. This creates an incentive for carriers to provide the requested data. The fact carriers don’t have to transfer the data directly to the regulator makes the process even simpler. Once carriers have agreed to be part of the report, they authorise the AAIS to use smart contracts on the blockchain to access and aggregate the relevant data and provide it to the state regulators.
In that way, only the necessary data has been provided to regulators, and it has been done so in an aggregated and anonymised form. The regulators then get the report they need and share it to the market. This resolves the security issues, enhances trust and incentivises carriers to share data.
4. The importance of blockchain
Critics might argue that, since members trust the AAIS, the same functionality could have been achieved using a large database managed by the AAIS. This is neither a possible nor the best solution.
It is not possible due to the security and trust issues in sharing data. Not using blockchain would mean carriers would have to transfer data to the AAIS environment. The complex cybersecurity and data protection regime carriers operate in leads to carriers being legitimately hesitant to transfer data outside their control.
Using blockchain for openIDL is also a better option as it enables the AAIS to shift the value it provides its members. It is an opportunity to change the role of advisory organisations and move away from being a statistical reporting agency. Traditionally, if a carrier sends data to an advisory organisation, they may later pay to gain access to statistical reporting.
Blockchain provides a better way. The data will be stored on the blockchain and ownership will remain with members. Instead of members paying to access aggregated data, they will receive market insights and improved information to enter new markets and develop new products in return for their data. As Joan says, the AAIS’s core function had always been to create new products and keep them up to date for the benefit of the insurance industry.
5. The challenges in adopting openIDL
Unlike what we often hear in the context of private organisations adopting blockchain, AAIS members were eager to adopt openIDL.
The AAIS board of directors, which is comprised of CEOs of insurance companies, were excited about using blockchain to improve efficiencies and decrease costs in data sharing. Members were easy to convince as the AAIS made the transition very easy. OpenIDL’s first pilot project did not require members to do anything, using 2.5 million records already on the system. The AAIS then provided members the tools required for a smooth transition to the platform. The end result is that all AAIS members are participating in openIDL without incurring any expenses.
6. Goals for the future
Success for openIDL entails a technical and a cultural aspect. From a technical perspective, the goal is for all members to have a key data sharing infrastructure in place in the future. That blockchain-based infrastructure will provide value to its members and also enable them to connect with other industry networks.
The AAIS also aspires to bring a cultural change with openIDL. Joan hopes the ease, security and transparency of openIDL will make members excited about sharing data. Seeing how openIDL can lead to new products quicker, help regulators and provide carriers with industry insights, we believe this is definitely possible.
OpenIDL is built on IBM’s Hyperledger Fabric. Joan believes blockchain interoperability is achievable and Hyperledger Fabric will make this possible. While every blockchain network will have its challenges, advantages and disadvantages, Hyperledger Fabric is run by the Linux Foundation, the most successful open-source, open-platform software organisation, making interoperability more likely.
Additionally, the Linux Foundation has been excellent in providing support and IBM’s expertise has been invaluable. A global network of developers has been quick to support the AAIS with any problems it encountered, helping openIDL reach 2.5 million records on the blockchain and a fully operational web-based system in just seven weeks.
Joan provided a great overview of openIDL’s development and explained how blockchain can become the catalyst behind a cultural change in data sharing.
If you liked this episode please do review it on iTunes – your reviews make a huge difference. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Joan a question, feel free to add a comment below and we’ll get her over to our site to answer your questions.
Thank you Joan!
Rank #8: Ep.46 – A retrospective look on blockchain for 2018
For this episode we were fortuitous to reconnect with Dante Disparte Founder and CEO of Risk Cooperative to look back on how blockchain has evolved in the insurance industry in 2018 and what we can expect for 2019.
What is blockchain?
For the insurance industry, Dante describes blockchain as a bordereau or a ledger that exists simultaneously in an exact form across multiple distributed computer systems. From the outset this creates a level of resilience, a level of tamper proofing that you don’t get from existing technologies today.
Retrospective of blockchain in the insurance industry in 2018
“Still the beginning”
“Still the beginning” is how Dante would characterise blockchain in the insurance industry. In spite of Bitcoin recently celebrating its 10thanniversary, it’s really only been in 2018 that we started seeing large scale enterprise tinkering with blockchain technology.
In January 2018, Dante penned an article “One Thing Is Clear From Davos, Blockchain Is Out Of Beta” in Forbes, where he stated that at least 50% of the Fortune 500 were embarking in deep experimentation with blockchain. 2018 was the year of orientation, and Dante believes that 2019 will be the year of experimentation at scale. 2020 would see the much broader adoption of the technology across asset classes and across industries.
Consortiums and competitive advantage
The most mature and evolved model in the insurance industry are the consortia at B3i and the RiskBlock Alliance. This model allows a risk averse industry, such as insurance, to understand the technology and follow their peers in getting basic POCs and use cases.
Dante’s personal view of the world is that the consortia approach amounts to co-opetition which is tantamount to having Amazon partner with Walmart and JC Penny’s (For the UK: Tesco partner with Sainsbury, Asda and Lidl) in building ecommerce platforms. For Dante there is a genuine opportunity for insurers, brokers and others in this industry to leverage emerging technologies like blockchain and others to get a competitive advantage. Firms that really embrace those technologies, instead of limiting it to back end efficiency plays, will really take a lead over their competitors.
In episode 23 “Blockchain from an Allianz perspective and lessons learnt” Bob Crozier, Head of Global Blockchain Centre of Competence at Allianz. Pointed out that “B3i is not about getting a competitive advantage. It is for the industry and by the industry and its goal is to use blockchain to address industry pain points, help members reduce their cost base and make customers’ lives easier.”
Whilst Dante agrees that there is value in such consortia his issue is that the strategic challenges the insurance industry faces require competitive dynamics than the consortia model doesn’t allow for. The average expense ratio is between $0.30 and $0.50 on every dollar of risk capital.
If a firm tries to become more efficient to risk allocation and risk pricing but yet everybody in the insurance industry is following the same model in leveraging technology in exactly the same way, that firm’s potential net gain has been washed away.
Opportunities for Innovation – Insurwave Style
Insurwave is a great example of opportunities for innovation that is triggered by the buy side of the market, especially when you are a Maersk with enough buying power and clout to force the insurance industry to innovate.
Need for Digital Transformation
“Where the internet was a disruptive technology in every sense of the word, blockchain is an augmenting technology”
Blockchain isn’t meant to disrupt or displace the core function of the insurance industry, after all what is an insurance industry but a promise to pay. Blockchain is a technology that is here to amplify the trust.
Maersk has a fortuitous balance sheet which in some ways means it can opt out from the insurance market all together. We are seeing an increasing wave of large firms self-insuring themselves and even opting out of the insurance market. Dante uses the example of VW emissions scandal, who in spite of this scandal still managed to become the largest automaker the year after. The role insurance can play in those large enterprises becomes less and less relevant when insurance operating model is still stuck in the year 1730.
See Insureblock’s “This is us” video for a playful put at the insurance industry being stuck in the past.
Dante points out to the new operating realities in the marketplace that can’t be ignored by the insurance industry. There is a new generation of consumers born with a smart phone in their hand used to instant gratification. There is nothing instant or gratifying about the process of getting a class of insurance underwritten under traditional norms and through traditional value chains.
Even the developments done by Etherisc and by Fizzy in providing some form of instantaneity in terms of protection and claims outcome and remediation. Insurance at the core is an instrument of utmost good faith and technology enables insurers to show that. That’s a very powerful model of transformation that doesn’t come at the expense of traditional distribution model but it does tap new model opportunities.
The new megatrend is with regards to the asset light economy we live in. New generations are urban dwellers who opt out from owning a car and who share an apartment with friends longer than previous generations. This represents both as an opportunity and a challenge for insurers if they are willing to decouple their traditional distribution models. Nothing but technology can enable insurers to reduce their 30-50% expense ratio to price their solutions sufficiently to attach to those new buying habits.
Last new megatrend is with regards to a world being etched by complex big catastrophic events, which Dante calls “non-conforming risks”. Risks that don’t care about actuarial models that can level entire cities or communities. Think climate change related ones. These risks are happening at an increased frequency. The insurance industry has a unique double jeopardy – the assets that they once thought were safe to offset liabilities on the balance sheet are now proven to be very risky. Insurance industry have to look at bringing new talent, new technology and new strategies to face those challenges.
Predictions for 2019
Like any big wave of technology, Dante believes, we have now crested the peak cycle of the hype cycle and are now entering a more mature phase. Blockchain will now fade into the background as a callout technology. What customers want is trust, transparency and a technology like blockchain that can defuse the asymmetries of information that don’t work in the markets favour. Firms will be able to do achieve that by using blockchain technology but without putting the label on it. As a technology, blockchain doesn’t sit in isolation from other new modern technologies such as AI, IoT, Big Data, Machine Learning and Robotics.
Blockchain for Insurance – June 18-19th2019 in London
Dante and Walid will be co-chairing the 3rdinstalment of the Blockchain for Insurance conference in London. Insureblocks and Dante are both looking forward to catching up with the real blockchain practitioners outlining their progress. We aim to provide the delegates with the ability on how to sell digital transformation internally. To provide them with real proof points from insurers who have developed blockchain solutions for them to benchmark to and learn from. To find out more about this conference click here: https://blockchain-insurance-europe.com/
Many thanks Dante for participating with us in this fireside chat and we look forward to greeting you in London on the 18th of June. If you liked the podcast please do review it on iTunes. If you have any comments, suggestions on how we could make it better please don’t hesitate to add a comment below. If you’d like to ask a question to Dante, feel free to add a comment below and will get him over to our site to answer your questions.
Rank #9: Ep.43 – ‘Mutualisation’ of insurance through blockchain – insights from Nexus Mutual
Last week we had the pleasure to talk to Hugh Karp, founder of Nexus Mutual, about their insights on how blockchain and smart contracts can be used for building effective insurance mutual. This is Hugh’s second appearance on Insureblocks as he was a guest blogger last September where he penned a post on “Public Blockchains in Insurance: Do incumbents need to worry?”
What is Blockchain?
Hugh believes it is more interesting to focus on what the technology enables instead on focusing on the technical description of it. Blockchain gives a shared view on some sort of information, so that everyone can agree on the information and that it can only be changed by playing by the rules.
Examples of such information are account balances and the rules could be a combination of smart contract logic and consensus process to add new information to the blockchain. In Bitcoin that consensus process is mining for example.
Once we have shared information that all parties can agree on, and self enforcing rules, we can coordinate human activity in ways we couldn’t do before. What is key is that this can now be done more efficiently than ever before and without a central regulator.
Mutuals are the original insurance structure. They arose because communities recognised that they had a shared common risk and that they would be more resilient if they spread this risk out within the group. These communities would pool resources together and decide as a group when a claim will be paid. If no claims were made then all the members benefited.
This is a stark difference to traditional insurance companies whose interests aren’t aligned to those of its customers. Shareholders driven by profit by not paying out claims. Mutuals are member led and have a shared goal thus reducing the risks for conflicts of interest.
So what about regulators? Aren’t they meant to reduce those conflicts of interest? Hugh believes that in well developed countries that is the case but it comes at an administrative costs. In developing countries though many people don’t always have a reliable legal and regulatory system on which they can rely on.
What is Nexus Mutual?
Nexus Mutual uses the power of Ethereum so people can share risk together without the need for an insurance company… ie bring back the true form of mutuals where individuals contribute to an insurance like entity and group together to protect themselves. Nexus Mutual uses blockchain to reengineer the business model.
The role blockchain and smart contracts play in building a mutual?
How does it help to scale trust and capital? Mutuals have traditionally struggled to compete with shareholder insurance companies. Expanding outside of their original community group is challenging for a mutual. Hugh exemplifies this problem with an example of where one village may not trust the elders from another village to pay out their claims. Thus blockchain can be helped to scale out trust because instead of having to trust that other group of people you simply have to trust that the code works as it is intended.
The other, less well-known issue, that mutuals face is the scaling of capital. Due to how they are structured, mutuals can only raise money from their membership base, and have limited access to capital markets. As insurance is capital intensive it does put limit a mutuals growth.
Hugh believes that due to their decentralised characteristics mutuals can only be built on a public blockchain (e.g. Ethereum) instead of a private one (e.g. Hyperledger and Corda). This ensures that the funds are collectively held on a smart contract instead of in a central location. Member driven and member owned.
As Nexus Mutual is using smart contracts on the Ethereum public blockchain they can tokenise membership rights of the mutual which allows an increased level of flexibility on how they can raise capital. In other words the rights of the members (e.g. voting power) of the mutual are represented as tokens on the Ethereum blockchain. The more tokens you have the more you can transact within the mutual.
Nexus Mutual is building the initial set of governance, the rules, by which the members of the mutual agree to abide by. Examples of such rules are how many tokens they need to acquire to do claims assessment and how many they need to destroy to purchase cover. Additionally if members participate in the system fairly they get rewarded with tokens if they participate unfairly they get punished. This creates the aligned incentives to make the mutual work.
Members can join that mutual based on those initial set of rules. Members can then vote to change the rules if they wish.
How do you avoid members of the community behaving like a traditional shareholder-based insurance company? How do you avoid them keeping the profits instead of paying out claims?
Nexus Mutual ensures that the rules and incentive structure are set up in a manner that is at least as good as those of a regular insurance company. For members to participate in claims assessment they have to place a bond before they vote. If they vote with the majority they earn rewards. If they vote fraudulently their bond can be destroyed. This system was rigorously tested via a third party utilising AI agents that have undergone a machine learning process.
Smart Contract Cover
Smart Contract Cover is the initial product Nexus Mutual will be launching with. This covers smart contracts, written on Ethereum, from the risk of having bugs or hacks that can lead to financial loss. This is recognised as the biggest risk within the Ethereum community as evidenced by two previous hacks:
- On the 26thof June an unknown hacker spotted a flaw in the smart contract code of the DAO (a digital decentralised autonomous organisation) resulting in 3.6 million Ether (a value of $50m at the time of the attack) being stolen
- Two Parity multi signature wallet attack. Multi signature wallets are smart-contracts designed to manage crypto assets by the consent of multiple wallet owners. The attacks led to the freezing of over $150m of ether with its owners unable to access their funds.
It’s a very niche product for the Ethereum blockchain only as Nexus Mutual is a crypto only platform. Cover can be purchased in Ether and/or in DAI. DAI is a stable coinlinked to the US dollar that doesn’t experience the volatility typically seen in crypto.
You can have a play around with their Smart Contract Cover on their Alpha Demo.
Warranting Nexus Mutual’s own Smart Contract
Nexus Mutual applies the highest level of security practices to its smart contracts and run audits and testing. For their launch they will have a small relative amount of funds to start with to minimize losses if something was to occur. Their smart contract code also has an emergency pause functionality should something go wrong so that they can stop the contracts. All smart contracts have timing windows and delays to control the amount of money that can come out.
Pricing of Risk
Due to the limited availability of data, Nexus Mutual has created a market based mechanism where the crowd sources the price of the risk.
This works on a two tier pricing approach: The first tier is quite common. It’s an algorithm that determines how battle tested the code is, how long it has been on mainnet, and how often has been it hacked. This works for quite a few smart contracts but not for all. The second tier, is where Nexus Mutual allows any members of the mutual to stake value or place a bond against specific smart contracts that they think are secure. In return the members can earn a sales commission when someone buys cover on that contract. Thus the more the members stake the lower the price of cover.
Becoming an Alternative Risk Carrier.
Hugh recognises that his first focus is to prove Nexus Mutual’s business model and get some initial scale. Once they have reached those goals they plan to open up their product offering and include ones such as natural catastrophe covers as have a massive global under insured problem. Nexus Mutual’s cost efficiencies will enable people to get cover with small limits.
Hugh has provided some excellent insight into how blockchain and smart contracts be used to build insurance mutuals.
If you liked this episode, please do review it on iTunes. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Hugh a question, feel free to add a comment below and we’ll get him over to our site to answer your questions. To find out more about more about Nexus Mutual and their aim to becoming an alternative risk sharing platform you can read their whitepaper.
Rank #10: Ep.21 – ACORD: data standards for blockchain in insurance
Bill shares his perspective about the importance of the uniform data standard provided by ACORD and the value of investing in blockchain and new technologies.
Blockchain in two minutes
A blockchain is a digitized, decentralized ledger of transactions.
The first step is a transaction request, such as a claim, contract or endorsement. This request goes over a peer-to-peer network and, after its validity is verified through cryptographic algorithms, it is combined into a new data block which is added to an existing blockchain, thereby completing the transaction.
In insurance, the peer-to-peer network can be comprised of insurers, reinsurers, brokers, independent agents, regulators or anyone with a vested interest in the insurance industry.
ACORD is the global standard setting body in the insurance industry. It aims to bring together various stakeholders for whom collaborating would otherwise be difficult, either because they are competitors or because they lack the necessary infrastructure. For over forty years ACORD has been providing the infrastructure, facilitation and expertise to enable fast and accurate data interchange by creating electronic standards, standardised forms, taxonomies and tools. It boasts over 8,000 global members, with one third of all global premiums leveraging ACORD standards covering brokers, agents, carriers, reinsurers and solution providers.
With new technologies such as blockchain, IoT and usage-based insurance, data standards have become more important than ever. Investing in innovation runs a risk of becoming a one-off investment due to an inability to effectively leverage the technology. By setting a common data standard across the industry, ACORD helps lower the cost, risk and time associated with investing in innovation.
ACORD and blockchain
A great aspect of blockchain is that it requires a level of cooperation which brings together the stakeholders in the insurance industry. Operational efficiency is blockchain’s most popular feature. However, Bill reminds us of blockchain’s potential to enable the development of superior value propositions. Talented individuals across the insurance industry can work together to focus on meaningful differentiation rather than just thinking how to compete on price based on a specific set of data.
Following a proprietary approach to data standards would be a mistake. It would create barriers in the industry by limiting a product’s uptake and the the availability of vendors to develop innovative solutions.
Having a common data standard is therefore critical. It reduces risk and makes it easier for existing legacy platforms to adapt to blockchain. A common data standard does not only create a tactical advantage, ie cost reduction, it creates a strategic advantage as well. ACORD standards leverage much of the work done in the insurance industry in the past decades and share that with ACORD’s global network.
ACORD is involved in most, if not all, blockchain initiatives globally, either by helping develop their data standards or by directly leveraging ACORD standards as part of the initiative. Here at Insureblocks we have seen quite a few of these initiatives. Insurwave, B3i and R3’s Corda blockchain all utilise ACORD standards. ACORD is also working with different digital network operators, including B3i and the RiskBlock Alliance, to create a smart contract standard on how data is processed, a key step in allowing interoperability between different networks. Finally, ACORD is working with Ethereum and IBM’s Hyperledger Fabric as it seeks to set a uniform data standard across blockchains.
Data in the insurance industry
Data is the lifeblood of the insurance industry, which fundamentally works by examining data to quantify risk. While insurance companies have been doing this for hundreds of years, digital data requires a different approach. ACORD has created a digital maturity model as part of its white paper on the insurance industry’s digital maturity, which is freely available for ACORD members here. You can also read more about the study here.
The model ranks digital data maturity in five stages:
- Analytically impaired: companies at this stage are dominated by standard reporting and maybe some ad hoc reporting. They use data to ask backwards facing questions, such as why did a loss occur or why did growth not match expectations.
- Localised analytics: these companies have some ad hoc reporting and queries and tend to focus on how they can use the data to improve.
- Analytically aspiring: they might have passive alerts and some statistical modelling. These companies use data to predict how the industry will develop and move forward.
- Analytical carriers: they use forecasting and predictive tools to innovate and differentiate themselves.
- True digital competitors: these companies ask what is the best possible outcome and seek how to best utilise data and highly leverage predictive analytics across the insurance value chain.
Bill stresses the importance of leveraging data to create a competitive advantage. Using data to look backwards and ask what happened is not a strategic use of data. Companies should ask how data usage can be optimised to lead to the best possible outcomes.
ACORD’s study found that only 10% of insurance companies are in the top category, with another 10% falling in the second. The good news is that only five to ten percent are in the bottom category. What Bill is most concerned about is the middle grouping, which includes over a third of all insurance carriers. While these companies are investing in optimising their digital data, this can be a costly and difficult journey.
Blockchain in the insurance industry
Analytical carriers and digital competitors, the two top categories of the digital maturity model, are two to three times more likely to be using blockchain. As a whole, however, the insurance industry has been hesitant towards blockchain. Bill gives us two reasons for this:
1. Legacy technology
Perhaps surprisingly, the insurance industry was one of the first adopters of technology in the late 1960s to early 1970s. This has led to a great deal of legacy technology which makes it more difficult to leverage new technologies.
2. Risk aversion
The insurance industry avoids risk. Despite the fact insurance companies quantify and cover risk, they seek stability and consistency by managing, codifying and transferring that risk. Part of this involves examining past performance to calculate premiums. This practice has made insurers more conservative and has created a negative feedback loop which does not incentivise risk-taking behaviour. Coupled with the fact that insurance is a very compliance and regulatory driven industry, insures have both real and perceived barriers in utilising new technologies like blockchain.
This hesitancy, however, comes with a very real risk itself. Many companies will be unable to catch up with blockchain once it takes off.
This hesitancy, however, comes with a very real risk itself. Many companies will be unable to catch up with blockchain once it takes off. Last generation technologies, such as the microwave or television, had a latency period of anywhere between ten to thirty years and once the uptake occurred the CAGR (Compound Annual Growth Rate) was 4%.
Things are different now as there is no latency period. A new technology is introduced, examined and then quickly adopted or discarded. If companies don’t embrace these technologies, experiment with them and become part of the learning curve, they risk missing out. Adopting new technologies, including blockchain, is about informational scale economies, instead of operational. Some blockchain initiatives will be unsuccessful but will still constitute a learning experience. Late adopters, on the other hand, will be at a disadvantage as they will miss out on the knowledge on how to optimally utilise blockchain.
Why companies can’t play catch up
A common response is that many companies cannot afford to invest in unproven technology. They would rather wait to see how blockchain develops and then spend extra money to hire experts to help them catch up.
The problem with that argument is that it misunderstands the nature of blockchain. Large teams are not well-suited to new technologies and spending a lot of money and resources to catch up with blockchain is neither necessary nor effective. What is necessary is to have a small and highly skilled team of three to five people thoughtfully examine blockchain to understand the issues, opportunities, and strategic and tactical implications. This is a long term objective and not investing in new technologies may dissuade this talent from ever joining a company, which is one of the reasons insurance commonly appears in the bottom quartile of attractive industries for young people.
To draw an example from the finance industry, Commerzbank is currently experimenting with five different types of blockchain. While this is taking things to the next level, it illustrates how adopting blockchain is a long term effort seeking to enhance a company’s knowledge.
Technology investment and shareholder returns
In the blockchain for insurance summit Bill gave a persuasive explanation on the correlation between IT investment and total shareholder returns. The study examined a few thousand carriers over a twenty year period and tried to identify whether the level of IT spending correlated to total shareholder returns.
At face value there is no correlation between IT spending and shareholder returns. However, the team confirmed that if IT spending is aligned with strategic intent, business processes and organisational attributes and capabilities, a strong correlation with shareholder returns is clear.
IT spending needs to be done thoughtfully as part of an overarching strategy. This includes focusing on the product, focusing on customer-relationship management, innovation, operational efficiency and price based competition. Companies that successfully align these objectives with IT investment have some of the highest customer satisfaction and retention levels and achieve superior loss cost, which averages over 70% of premium dollars for property and casualty and non-life insurance. The correlation coefficient between level of IT spending and the ultimate impact on shareholder returns becomes well over 0.9.
ACORD and blockchain investment
One of the objectives of ACORD is to help members invest in blockchain and other new technologies.
Looking at the diffusion of innovation curve, we can see a trigger, a peak of over-inflated expectations and some depression. Expectations and results vary greatly when investing in new technologies.
ACORD examined over 600 successful and unsuccessful technologies in the insurance industry over a 20 year period to create a framework for examining whether new technologies like blockchain will be successful:
- At the core of this framework is the anticipated and actual captured value, ie how much value the technology was expected to create and how much value it ended up creating.
- Can the technology be tested? Technologies that do not allow for experimentation and testing because they require users to discard much of their legacy technology tend to fail regardless of whether they would have created value.
- Do the decision-makers believe it was the technology in question that led to the improved result? The insurance industry depends on numerous factors, such as weather and the economy. It needs to be clear that it was the technology that added value.
- Is the technology compatible with legacy technology? Technologies and innovations that require replacing a lot of infrastructure tend to be unsuccessful.
- What is the level of homogeneity between users? Users of successful technologies use it in a consistent way.
- Is there coopetition? Competitors coming together to make the technology useful is a good sign.
- Are there authoritative adopters? Successful technologies tend to be adopted by firms within the industry which are respected in their given areas.
Bill stresses that these criteria are necessary but not sufficient. The laserdisc fulfilled all the criteria and had superior image to the VHS but that didn’t take it very far. Nevertheless, we are happy to see blockchain fits all the criteria.
Bill gave us some great perspective on the importance of common data standards and how to best approach blockchain and other new technologies.
If you liked this episode please do review it on iTunes. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Bill a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.
Thank you Bill!
Rank #11: News Flash – The Institutes RiskBlock Alliance selects R3’s Corda Blockchain for Canopy 2.0
Welcome to the second episode of our News Flash series, where we share the latest developments in the blockchain space. For today’s episode we are excited to present returning speaker Christopher McDaniel, president of the RiskBlock Alliance.
Chris will guide us through the release of Canopy 2.0, the new version of the RiskBlock Alliance’s blockchain framework, which will run on R3’s Corda Blockchain.
The RiskBlock Alliance, which featured in one of our previous episodes (An Introduction to The RiskBlock Alliance), is an industry-led consortium comprised of insurance carriers, brokers and reinsurers focused on delivering blockchain solutions to the insurance industry. What sets it apart from other insurance consortiums is the fact it’s a not-for-profit organisation sponsored by The Institutes, an educational organisation focusing on the property and casualty space that has been around for over a century.
Since its founding last September, the RiskBlock Alliance has expanded significantly. It developed a relationship with LIMRA in the life annuity and retirement space and expects to expand in areas including group benefits and workers’ compensation.
The RiskBlock Alliance is built around three aspects.
- The consortium itself and its members, who are integral in ensuring the RiskBlock Alliance is for the industry and by the industry.
- Its blockchain framework, Canopy, a standardized set of blockchains that are reusable for many applications.
- Blockchain applications. The RiskBlock Alliance builds fifteen to twenty application on an annual basis on its Canopy framework.
Before Canopy each company had to create its own blockchain for its applications. If a company decided to build a blockchain application utilising policy information, they created a policy blockchain. Then, if a different company built another application requiring policy information, they had to build a similar blockchain from scratch.
The RiskBlock Alliance’s solution to this is Canopy, a framework that makes it easier for companies to experiment with blockchain and create their own solutions. It provides a set of reusable blockchains, such as a policy or a claims blockchain, along with numerous applications that work on these standardized blockchains.
Canopy 2.0 will be released in early September, along with a blockchain application for proof of insurance and one for first notice of loss in claims. It aims to become the framework that connects all blockchain applications together.
1. Universal framework
Canopy 2.0 will be the first universal version of Canopy. While the RiskBlock Alliance will continue building its own applications, Canopy 2.0 will be an open framework others can build upon. It will have the tools and components to allow others to cooperate with the RiskBlock Alliance and improve the framework by creating applications and expanding the framework itself. In that way Canopy 2.0 can grow beyond the areas it is currently focused on, making it the first true end-to-end blockchain insurance platform.
2. Back office connectivity
At the moment a lot of blockchain solutions ignore the problem of connecting back office systems with the blockchain, leading to a gap between blockchain applications and back office data. Canopy 2.0 solves that with its ability to create APIs to connect back office systems with the blockchain.
This connectivity does not just make loading data onto the blockchain easier, it also allows members of the consortium to create more flexible use cases. Chris points out that blockchain is not meant to be used as a data warehouse and it is neither easy nor sensible to put every piece of data onto the blockchain. Through these APIs, members will be able to selectively combine data from the blockchain with data from their back office systems in their applications, thereby creating more flexible use cases for all blockchain applications on Canopy.
3. Canopy in the Corda environment
While the first version of Canopy was built on Ethereum, Canopy 2.0 is build on R3’s Corda platform. Similarly to Insurwave, the RiskBlock Alliance chose Corda because it is focused on enterprise and has built-in the necessary privacy capabilities.
The RiskBlock Alliance has opted for the Corda Enterprise version, which we discuss in our previous news flash. At the moment the main reason is that it makes managing the nodes in the blockchain easier but Chris is also excited about the future of Corda Enterprise, which has the potential to interface different blockchain platforms together.
Working on Corda also gives Canopy the ability to communicate with other Corda based apps. The Corda platform has attracted multiple promising initiatives such as Insurwave or Generali’s quotation process. The RiskBlock Alliance does not expect, or want, its applications to be the only insurance solutions. It aims to work together with other innovators to create a framework where all these applications can communicate and cooperate. Canopy 2.0 is exactly that.
Under the Corda Marketplace, which is set to launch by the end of the year, applications will operate under different governance rules. For example, B3I applications can sit under different governance rules than Insurwave. The RiskBlock Alliance, however, is working on making apps on Canopy available on any business network and is also in talks about creating a branded version of the Corda Marketplace where all Canopy applications will be available. Chris even hopes Canopy will be able to communicate with applications built on Ethereum or Hyperledger Fabric, although this is much more challenging than communicating with Corda apps.
Developing Canopy 2.0
Canopy’s APIs might have solved the issue of legacy back office systems but the legacy state of mind of some insurance companies is an additional challenge in developing Canopy 2.0
This was one of the major issues the RiskBlock Alliance discussed in its advisory board meeting, which is comprised of executives from its member companies. While the board is eager to explore the benefits of blockchain, the whole of a company needs to embrace the technology for it to be efficiently deployed at scale. This means convincing the compliance, technology and operations departments on the benefits of blockchain and the Canopy 2.0 framework.
The RiskBlock Alliance plans to achieve this through educating its members. It created a robust test platform so that members can experiment and become comfortable with the framework before going live. In a similar spirit, the RiskBlock Alliance has been working with The Institutes to create a blockchain certification programme. This will be followed by a choice of two capstone programmes. The technology capstone will go into the technical details of implementing the blockchain, while the business capstone will focus on how blockchain can be used in an insurance ecosystem.
By educating members on the benefits of blockchain and letting them experiment with the Canopy 2.0 framework, the RiskBlock Alliance is hoping to win over the hearts and minds of its members.
What’s next for the RiskBlock Alliance?
Launching Canopy 2.0 is just part of the RiskBlock Alliance’s strategy, which includes expanding in new areas, new territories and providing new products.
1. P&C and beyond
The property and casualty space is currently ahead of other sectors in terms of blockchain integration, with Chris hoping the majority of the RiskBlock Alliance will have embraced its blockchain applications by the end of the year.
The RiskBlock Alliance also plans on bringing other sectors up to speed. On the life and annuity in retirement front, it is currently in the process of onboarding members before developing use cases, which will roll out by early next year. Other areas such as workers’ compensation and group benefits are still in early stages, set for development in 2019.
2. Going global
For this episode Chris joined us from Toronto, where he is in the process of establishing RiskBlock Canada. Europe and Asia Pacific are the next targets for expansion for later this year, with the RiskBlock Alliance hoping to start developing applications for these areas in early 2019.
3. Canopy 3.0
The RiskBlock Alliance is planning to enhance it’s blockchain framework, enabling its members to use it for analytics, integration to IoT and other technologies such as AI and machine learning. It is currently in talks with R3’s Corda team about achieving these functionalities on Canopy 3.0 but hopes they can be achieved across the whole Corda platform rather than being limited to the Canopy 3.0 framework.
4. New products
The blockchain space is currently focused on making the insurance industry more efficient. Chris points out there is an 80/20 split between improving efficiency and creating new products. Canopy’s latest applications, which focus on proof of insurance, first notice of loss and subrogation all aim to make insurers more efficient and reduce costs.
As Canopy gets better developed and enhanced with more information, Chris predicts the 80/20 split will be reversed as the RiskBlock Alliance will be able to create new products utilising all the newly available data. These products will be completely novel, with many focusing on connecting insurance with other industries. For example, the RiskBlock Alliance is currently talking with a company in the supply chain space who want to create real time insurance policy applications at every step of the supply chain.
We are excited for Canopy 2.0 and it seems there is a lot more in the future for the RiskBlock Alliance. With its expansion in new areas and territories, it seems the RiskBlock Alliance is hungry to shake things up in the insurance space.
If you liked this episode please do review it on iTunes. Your comments and suggestions are always appreciated so please don’t hesitate to add a comment below.
If your organisation has any news you’d like to share regarding blockchain, feel free to get in touch with us and we’ll help you spread the word. If you’d like to ask Chris a question, you can add a comment below and we’ll get him over to our site to answer your questions.
Thank you Chris!
Rank #12: Ep. 24 – Britain poised to be global leader in blockchain
This week we focus on a recently published report claiming that the UK is poised to become a global leader in blockchain. To help us discuss this we are joined by Sean Kiernan– one of the reports key authors and CEO at DAG Global.
Sean is a banker, with previous experience in both Switzerland and London, as CEO of Falcon Private Bank’s London office, who at the time were the first regulated crypto-bank. He has recently been involved in setting up DAG Global, a London-based company aiming to become the UK’s first regulated crypto-bank where he is its CEO.
Blockchain in two minutes
The easiest way of describing blockchain is to imagine a spreadsheet, which everyone across the world can see, in both its current format but also every previous edition. This analogy reflects the decentralization of the ledger and also the immutability of the blockchain technology and can be extended further as formulas can be added to spreadsheets. The addition of formulas reflects automation offered by smart contracts, allowing ecosystems to be built and enabling the restructuring of processes for the benefit of all parties.
Is the UK placed to become a leader in blockchain?
To build a successful blockchain ecosystem, both IT and Financial sectors are required. Unlike the US, where San Francisco and New York are independently recognised as the technology and finance hubs respectively, London is rare in that it has a huge IT sector alongside a financial services sector which are both globally recognised. Many of the big American IT houses have acknowledged this, with Google, Apple and Facebook increasing their UK staffing despite Brexit lying just around the corner. In addition to the right industry components, the UK’s regulatory framework is also beneficial to widespread blockchain development and adoption, but more on this will be mentioned later.
Whilst places like the Zug Valley in Switzerland are also competing for the title of ‘blockchain capital’, with an intent in the Swiss Banking sector redefining itself through marketing and cryptocurrency. However, the Swiss finance sector cannot compete with the depth of financial services offered in London, with a multitude of hedge funds, insurance, private equity and asset management firms alongside a healthy range of private banking firms also, leading to wider demands on the blockchain ecosystem and more potential for progress. The presence of blockchain consortium R3 in London represent the developmental opportunities in London, not only in finance but also within both healthcare and real-state industries also.
How has the UK Government engaged with blockchain?
The involvement of the All Party Parliamentary Group on Blockchain (APPG Blockchain) and Deep Knowledge Analytics in authoring this report has outlined the discussions between governmental groups and different sectors of the UK economy as to how blockchain can be used to optimal effect. Additionally, the FCA has provided public statements of support for the emerging sector and a regulatory sandbox for product development. Businesses can test innovative products, services, operating models and delivery mechanisms within the regulations imposed by the FCA, ensuring that consumer benefits can be delivered whilst also managing the associated risks.
The successes of this scheme have led to a ‘global sandbox’ being proposed, with the FCA leading a collaboration of 11 other financial regulators, forming the Global Financial Innovation Network (GFIN) and demonstrating future promise for the move towards regulated global blockchain adoption with the FCA at the helm. By recognising and working with blockchain developers, the GFIN can help educate individuals on the safety of blockchain. This helps to bridge gaps between traditional financial services and blockchain based technologies such as cryptocurrencies, with potential for a token economy in the future.
How was the report initiated?
The report was the brainchild of a group of people. Dmitry Kaminiskiy, a colleague of Sean’s at DAG Global, is also the founder of Deep Knowledge Ventures and has issued numerous reports in various sectors including technological longevity and artificial intelligence. He discovered that no such report on the UK blockchain space had been conducted and set out to create an encyclopaedia of UK blockchain in collaboration with Big Innovation Centre. The Big Innovation Centre is a UK-based thought-leader, helping to bridge the gap between the government and the private sector, opening dialogue and ensuring all parties are working together. The report was designed to be a snapshot doing just that – raising awareness and opening discourse between the various parties. Hopefully, the report has been completed at an opportune time, giving the industry an extra little push at a time where some serious investment is being made and many professional people looking into how they can utilise the blockchain technology for maximal effect.
Examples where blockchain is being applied
Blockchain technology can become a universal language allowing immediate trust between parties with potential to be instrumental to the running of numerous processes across business. The transparency offered through immutable records and smart contracts is essential in allowing secure transfer of value, allowing blockchain to transform processes, reflecting the disruptive nature of the internet in the 2000s.
A primary example is within property. The country of Georgia worked alongside a company called Bitfury to solve issues associated with land-ownership rights. They started by placing the national land registry onto a blockchain, immediately solving a whole host of problems ranging from data quality issues to records accuracy and providing a public-access database allowing data to be efficiently accessed and transferred when required. Additional benefits were also observed. The insurance industry benefitted, with more frictionless access of records and acknowledgement of risks, and transactions within real-estate instantly became more secure, increasing trust and allowing time-stamped verification of previous transactions to be accessible to all.
The benefits extend to medical records too, though there is more contention surrounding this due to data protection issues. Theoretically, an individual could store their medical records on a blockchain, where they would own the data and then consent to disclose various parts of the record as and when required. By empowering the consumer in this way, the logic is shifted from current systems where databases and records are maintained by a specific company. Companies targeting these issues include disruptive pilot services such as Medichain and Mediledger which are both aiming to place sensitive patient data onto blockchain, providing both security and accessibility benefits in a hope to revolutionise healthcare.
The idea of blockchain allowing technology to meet trust is exemplified through Fizzy, the flight delay insurance policy released by AXA (see Ep. 22 – Fizzy, AXA’s Blockchain Case Study for more details). Where Laurent Benichou (Head of R&D at AXA) brilliantly says “it’s not anymore AXA that decides if you’re indemnified or not, it’s the smart contract”, perfectly summarising the level of trust in the blockchain code.
Common elements shared by companies embracing blockchain
Companies at the forefront of blockchain adoption are split into two categories, the bigger companies which have specific R&D subsidiaries or departments who are able to take a chance on something new, or the smaller nimbler companies who are happy and comfortable disrupting the markets and blazing a trail and leading the way in the industries. However, within 3 to 5 years, it is expected that the larger companies will develop their own divisions or acquire start-ups in order to bring the technology in house and reap the benefits themselves.
Criticisms of blockchain and future directions
One of the major hurdles blockchain technology approaches in the future, revolves around governance and data standards, with many saying that ensuring this interoperability between blockchains may take some time. This view was reflected in an article by Forrester Research, entitled ‘Prediction 2018: The Blockchain Revolution Will Have To Wait A Little Longer’ which predicted the winding down of numerous blockchain projects and pilots with others scaling back ambitions and timelines. Whilst there may be an element of truth in these predictions, that is not unusual with the onset of new technology and people should not be discouraged. The natural life cycle of these projects sometimes involves two steps being made forward with one step back, due to the experimental nature of the technology. However, much of the institutional funding is around for the long term, despite vociferous reports from places such as the Bank of International Settlements who disproved of the energy consumption surrounding cryptocurrency mining and the ‘fragility’ of the code. It is important to remember for each setback or cynic, there are plenty of alternative viewpoints held by those optimistic of blockchain’s future (as this blog has gone some way to prove).
The Banking sector reflects this, with recent reports of up to $1.7 billion invested into optimising the backend operations of banks with blockchain potentially transforming the transfer of value. Creating an ecosystem that can be shared across the sector is crucial, with the work of consortiums like R3 and B3i essential in the widespread adoption of the technology ensuring that compatibility between ecosystems is optimised. With many members of the Insurance Sector moving towards the Corda platform in order to streamline their backroom operations.
Other future directions to be explored could take advantage of the ability to follow events in real time on a blockchain. The benefits have been explored in previous episodes on Marine Insurance and Insurwave (See Ep.12 – Insurwave – A Maersk pilot for marine blockchain insurance, Ep.18 – Insurwave: the complete story with EY and Ep.19 – Insurwave: the insurer’s perspective with MS Amlin and XL Catlin) and have similar potential in the line of motor insurance with the utilisation of trackers and peer-to-peer (P2P) sharing of information improving the amount and quality of data available to insurers, and allowing them to reflect this in premium prices.
What blockchain initiatives have caught your personal attention?
Sean identifies a number of initiatives focussing social benefits of blockchain, specifically on increasing transparency with foreign aid delivery, and ensuring that those who are most in need of aid receive it, without a middleman taking a cut. One such example of this is AID:Tech, which is an Irish FinTech start-up aiming to bring social and financial inclusion to those currently underserved and ensuring the traceable flow of aid into disaster hit regions such as Syria.
Sean gave us a great insight into the report outlining the state of blockchain in the UK. If you liked this episode please do review it on iTunes – these reviews do make a huge difference. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Sean a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.
Rank #13: News Flash – B3i’s announcement at Monte Carlo 2018
Welcome to another episode of our News Flash series, where share the latest developments in the blockchain space, straight off the press. For today’s episode we are excited to present Ken Marke, CMO at B3i, the blockchain insurance industry initiative.
Ken is joining us to reveal some exciting news about B3i’s new product and plans for the future.
B3i, which we have introduced in a previous episode, began life in October 2016 when five insurers and reinsurers came together to see how blockchain can benefit the insurance industry. This led to a consortium which ten other members joined to test the viability of blockchain in solving problems for the insurance industry. Its first project was a prototype for a catastrophe excess of loss programme, which has been very successful. The next step was to establish B3i as a legal entity, domiciled in Zurich.
Now, B3i is focused on expanding its product line and enabling partners to cooperate with them to offer more products and services on B3i’s platform, thereby creating a network ecosystem. Today B3i will reveal how it plans to achieve this goal and Ken is here to guide us through B3i’s announcements.
1. Commercial insurance development programme
B3i is launching its commercial insurance development programme, for which it recruited Antonio di Marzo from Generali. You listen to Antonio’s interview below to find out more about B3i’s development programme.
B3i’s development strategy also involves expanding its global network. It will launch an office in New York in a few weeks and is planning to open several new offices in key regions around the globe. Additionally, B3i has been forming alliances with industry groups around the world, including the Association of British Insurers in the UK and the Chamber of Digital Commerce in the US.
The purpose of B3i’s new alliances, and of its development programme in general, is to expand its network and its ability to educate the insurance industry. Ken points out it is very important for the insurance industry to better understand blockchain’s potential. While experimenting with blockchain is welcome, Ken believes the time has come to move beyond experimentation and start identifying real problems blockchain can solve in the insurance industry. As Ken says, “let’s get blockchain out of the lab and into the business”.
2. Cat XoL product
Staying true to Ken’s word, B3i unveiled a demo of their Cat XoL prototype in September 2017, inviting companies to join its testing platform. We are excited to announce the Cat XoL product will become available on the market at the end of this year, taking live contracts on the platform through an early movers programme.
B3i chose Cat XoL as its first product as it is important to start simple when developing a prototype. A Property Cat XoL contract was the perfect choice as there is usually a smaller network in a reinsurance contract including a seed, a broker and a few reinsurers. Additionally, there are less transactions in a reinsurance contract, ensuring the new concept wouldn’t face too much pressure in the early stages of development. In that way, B3i could work on a simple project, making sure the prototype, its functionalities and peripheral needs are all in order before moving on to more complex products.
But isn’t trust already guaranteed in such a small network?
While engendering trust is one of blockchain’s strongest assets, it’s not the only one. The Cat XoL product helps ensure contract certainty and simplify communication, allowing parties to better deal with any unexpected challenges that might arise. Blockchain’s immutability ensures every party has the same version of truth, which removes friction from the value chain and the need for reconciliations in the network.
Testing a blockchain product’s performance against existing processes to measure the exact improvement in efficiency is not something B3i is expecting to do as the data on the blockchain is confidential to the reinsurance network. Having said that, the feedback from the product’s 38 market testers looks promising. B3i has been keen to learn how much of the manual work on reconciliation the Cat XoL product would save if it was adopted for the market testers’ insurance contracts.
The calculation across the value chain of the seasonal broker or insurer amounted to savings of around thirty percent of their administrative costs, proving B3i’s Cat XoL product can significantly improve efficiency.
The early movers programme
B3i’s early movers programme will launch at the end of this year and it is the first step in using its Cat XoL product with live contracts.
Ken tells us the programme essentially involves a trusted group of interested members who will select a real contract, due to renew in 2019, and place it on the platform. The purpose of this is to help B3i test the product’s resilience and functionality on a live scenario and refine the product as needed.
3. B3i and the Corda network
In our introductory episode on B3i we announced it was planning to switch from IBM’s Hyperledger Fabric to R3’s Corda network. This switch has led to a great working relationship between B3i and R3, which has helped B3i improve its development efficiency, reaching its objectives quicker while ensuring high-quality products.
Additionally, Corda’s business network is well-aligned with B3i’s ecosystem strategy. Corda’s technology makes cooperation easy between different supply chains and industries, such as insurance and banking. This means B3i has access to the necessary fluidity and efficiencies to create an open ecosystem that promotes cooperation.
4. B3i membership community
Our final announcement is B3i’s membership community. Up until now, the way to join B3i has been to become a shareholder, customer or partner. However, after its successful market testing programme B3i noticed that the interconnectivity, networking and educational aspects helped all parties in the group. It therefore decided to offer these benefits to a wider audience and B3i’s membership community will also be available to companies who do not wish or are not able to become a customer or shareholder yet.
The most important benefit of B3i’s membership programme is education. B3i has come up with numerous ways to enhance education and knowledge sharing among its membership community.
- Conferences: B3i will hold three annual conferences around the world. Member companies will participate by sending candidates, with the first three candidates being free of charge. These conferences will discuss market developments in blockchain within the insurance sphere, hold workshops, provide feedback and even share ideas for B3i’s new products and services.
- Think tank: members will participate in think tanks and working groups focused on specific issues, such as regulation. This will allow members access to thought leadership from B3i’s experts and the opportunity to develop concept papers.
- Feedback group: this will be more customer-focused than B3i’s think tank. Members will be able to share their latest blockchain-based insurance applications and get feedback from other members and user groups.
- Technical library: B3i will develop a repository of papers and other resources which will grow over time to help its members understand and employ blockchain.
- Networking: interconnectivity was a particularly popular aspect of B3i’s market testing. B3i will therefore develop a Slack channel where everyone in the community will be able to engage with each other, share ideas, answer questions and more.
Is there an opportunity for cooperation with other industries?
Here at Insureblocks we’ve recently launched our own community on Slack to facilitate the exchange of ideas and we are eager to see how this can help the cross-realization of blockchain initiatives and pilots from other industries. Companies from areas such as logistics or finance can join into this community to share their thoughts and begin the cross-realization of ideas early.
Ken and B3i share this vision. Blockchain can have huge benefits to areas such as supply chains and cooperating with the insurance industry will be beneficial for both markets. The oil & gas industry, for example, would benefit from the visibility and traceability of oil in the supply chain. From an insurance perspective, it would make insuring all the asset liabilities and handling claims much easier. B3i therefore welcomes other industries to participate in its new community.
Between B3i’s plans for international expansion, its new Cat XoL product and its membership community, we’re not sure over which announcement to get most excited. What we are sure of is that B3i is ready to take the lead in blockchain in the insurance industry.
If you liked this episode please do review it on iTunes. Your comments and suggestions are always appreciated so please don’t hesitate to add a comment below.
If your organisation has any news you’d like to share regarding blockchain, feel free to get in touch with us and we’ll help you spread the word. If you’d like to ask Ken a question, you can add a comment below and we’ll get him over to our site to answer your questions.
Thank you Ken!
Rank #14: Ep.41 – Key barriers to blockchain adoption – insights from Cygnetise
For this week’s episode, we spoke to Steve Pomfret, CEO at Cygnetise. Steve describes himself as a “process guy” with over 18 years of experience in bringing about operational change (efficiency and de-risking) at reputed banks and brokerage firms.
After learning about blockchain, Steve spotted an opportunity to apply his skills and learnings together with blockchain to streamline processes within the financial ecosystem. Presently, Cygnetise has one blockchain application used for management and distribution of authorized signatory lists such as delegated authorities, bank mandates etc.
What is blockchain?
According to Steve, blockchain has 4 pillars –
- Decentralised database
- A centralized database allows users with requisite permissions to add, remove, edit and view data (think of a spreadsheet on your computer!)
- A decentralised database is not owned by a single party. Hence, each party, with requisite permissions, can add and view data. There is a record (time-stamped audit trail to document modifications.)
- Distributed Ledger
- The key feature of blockchain for commercial applications – under traditional centralized systems of record, for a transaction between two parties to take place, there would have to be a debit and credit effect recorded. However, with a single shared database (as in the case of blockchain), data doesn’t need to move around.
- Numerous blockchain applications in insurance today exploit the immutability of blockchain (such as FlureeDB, which uses DLT-enabled databases.) Blockchain has an in-built audit trail that is timestamped.
- Smart Contracts
- Smart contracts are pieces of code that allow execution of certain actions conditional on certain pre-specified conditions being met.
- With appropriate (legal) documentation, smart contracts may also serve as (trigger based self-executing) legal contracts – this is the notion of Ricardian contracts.
Lack of universal terminology as a barrier
Steve makes an excellent point – since blockchain is a nascent technology, there are no universally accepted definitions for key concepts. To begin with, blockchain purists and business practitioners disagree on whether industry deployments of “blockchain” are “blockchain” or “DLT” projects.
As Steve points out, so long as the terminology used is clarified by the concern parties, the terminology itself doesn’t hold much significance.
Barriers to adoption of blockchain across industries
“Part of the adoption (of a new technology) is to break it down into something that is useful at a process level and then you can build and evolve as opposed to revolutionize.”
Blockchain as a nascent technology
Steve recalls the first time he read about blockchain in a newspaper – the article spoke about how blockchain would “revolutionize” trade, clearing and settlement process within the banking ecosystem. His initial reaction was that of surprise – as he rightly points out, how could you realistically expect hundreds of ecosystem participants spread across the world to each adopt a new technology almost overnight? In his opinion, such claims are equivalent to stating that it would be possible to build Facebook overnight.
The message is clear – change doesn’t take place overnight; more so at financial institutions since they are subject to strict internal and external scrutiny – new technology needs to pass through checks before reaching commercial deployment.
Integration with legacy technology
According to Steve, the more complex a blockchain based solution is, the harder it becomes to integrate the solution with the existing technology stack through API’s. Furthermore, he highlighted that another approach would involve identifying manual processes within an organization or an ecosystem that can be replaced by technology (perhaps, blockchain.)
How to build a business case for blockchain deployment?
“Companies that we’ve been talking to are nervous about holding their customers data .”
During the discussion, several interesting points were raised that could be used to support a case to deploy blockchain within a business –
1. Key characteristics of blockchain
- Immutability, smart contracts, distributed ledger and decentralised database.
- It should be noted that more than one of the above characteristics should be critical for the success of the project at hand.
2. More efficient use of (customer) data
- Blockchain provides an organization with greater visibility of data – thus, permitting data analytics to be used to provide better (personalized) services to customers.
As Steve mentions, the introduction of regulation such as GDPR has made businesses wary of storing more customer data than is necessary – the quantum of fines for data breaches under GDPR are enough to put SME’s out of business!
During the conversation, Steve makes an indirect reference to the growing commercial interest in “self-sovereign data identities.” Reputed high-street banks such as Barclays have tied up with Everynm to explore self-sovereign data identity through Sovrin (a public permissioned blockchain protocol.) The idea behind doing so is to give customers ownership of their own data. Thus, under GDPR, businesses would no longer liable for data breaches.
Bank mandates – a business case for blockchain
Steve provides an interesting blockchain use-case that has been explored by Cygnetise – bank mandates. Organisations have designated individuals who are permitted to initiate bank transactions from the company bank account on behalf of the company.
The traditional (pre-blockchain) process
If one of the signatories were to leave the organisation, the process of revoking authority to make payments is long-drawn, manual and paper- based i.e. prone to errors, delays and potential fraud.
After a form is filled out, it is posted to the bank which converts it to a PDF format to send to another department where records are manually updated – a process which takes at least a few days!
With blockchain, this process can become instantaneous.
Steve points out that it is possible for a centralized database to eliminate this paper-based process, but, blockchain offers two additional benefits –
1. Reduced risk to organisations
- Going back to the earlier point about Self-sovereign data identities (SSI), blockchain protocols such as Sovrin may be used to provide customers with ownership of their data – thus, reducing the risk exposure that banks and other financial institutions face with data breaches. (Alternatively, any permissioned blockchain protocol could be used to give customers control over their own data.)
2. Better customer journey
- Steve makes a valid point that medium and large-scale enterprises will have accounts with multiple banks and would therefore, need to carry out the above-mentioned process multiple times (once for each bank.)
- Using blockchain would mean a customer would just need to update the information once in its ledger on the blockchain for the change to be reflected in each of its bank accounts (feature of decentralised database.)
Concerns – user security and business implications
Steve highlights that using a blockchain based solution for changing bank mandates poses the same risk that would be faced in the original process – at the end of the day, in both cases, there would be a human that removes the entry (or decides to remove the entry.)
Companies maintain central databases to mine data and use the insight generated to offer better products to customers. To continue with a similar model would require a hybrid solution where cryptographic hashes of data are stored on chain and the data itself in stored in secure off-chain databases. If a customer provides consent, then the company can mine the data (in accordance with GDPR.)
How to overcome the legacy mindset?
“Everyone wants to see somebody else go first which is the biggest issue.”
Steve points out that a good starting point for blockchain is “utility applications” where blockchain comes in to replace a manual process – the business use-case should be strong enough for the focus to be on the benefit to the end-customer (or to the business) rather than on the underlying technology (blockchain.) Steve goes on to state that Cygnetise pitches the bank mandate product as a solution to a problem rather than as a blockchain product.
Improvement in customer journey and reduction in costs will spark blockchain adoption – Cygnetise clients have provided them with excellent feedback on their product and as adoption rates increase, it creates the ecosystem needed to fully unlock the potential of blockchain.
An example from the insurance industry – Fizzy by AXA
For this product, blockchain replaces the traditional process of making a flight delay insurance claim which involves getting a note from the carrier about the flight arrival time, filling in a form and then filing for a claim. With Fizzy, a delay of at least two hours, automatically triggers a pay-out to the customer (enabled by smart contracts.)
Fizzy isn’t marketed as a “blockchain based” insurance product rather it is marketed as “smart insurance, automatic compensation” – precisely it’s value proposition.
Time – the solution to mainstream blockchain adoption
Rather unsurprisingly, Steve stresses that people need to get over the “blockchain thing” … parallels may be drawn between the “dot com bubble” and the “blockchain hype.”
According to Steve, not enough companies are working on process level applications – there is a lot of emphasis on carrying out Proof-of-Concepts (POCs) by large enterprises – but these projects appear as press releases and then nothing else is heard about them later. We are currently in the “trough of disillusionment” phase of the Gartner Hype Cycle for Emerging Technology – it will be a few years until blockchain will go mainstream.
However, this will only happen if firms focus on ‘utility applications’like the bank mandate project by Cygnetise (where a ‘utility application’ would mean replacing a manual process with blockchain.)
Blockchain is becoming increasingly important – governments and corporates across the world are beginning to take an active interest in blockchain. For example, recently Amazon Web Services (AWS)has started to provide a managed blockchain service. There is a lot of interest in the legal profession regarding the legal status of smart contracts – a topic frequently debated in the community.
Steve summarizes his recommendations – start small, build incrementally, aim for profitability and remain customer centric.
Steve has provided some excellent insight into the key barriers to blockchain adoption.
If you liked this episode, please do review it on iTunes. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Steve a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.
Thank you, Steve!
Rank #15: Ep.45 – Automating the Claims Process with Blockchain – insights from Benekiva
In this week’s episode we explore how can we automate the claims process with blockchain. Our guest for this topic is Bobbie Shrivastav, Co-founder and Chief Product Officer at Benekiva. Bobbie has 15 years experience in the technology field. In 2015, in addition to becoming a parent Bobbie started working on Benekiva after realising all the inefficiencies in the insurance industry.
What is Blockchain?
Blockchain is magic? That magic pill that we have all been waiting for? Bobbie describes blockchain as a ledger of transactional records that is permanent and immutable, i.e. it can’t be changed. In addition it is distributed across a permission based or permissionless based blockchain and is append only.
What is Benekiva?
Benekiva is a technology platform that is here to bridge the gap between carriers, policy holders and beneficiaries via claims automation, asset retention and data management. Benekiva claims to be the only stand alone claims platform for life and annuity that focuses on the customer.
Challenges of the existing claims process?
In 2016, Bobbie heard a stat that 68% of life insurance goes unclaimed in the United States. According to NerdWallet and USA Today, there is $7.4 billion of unclaimed life insurance in the US alone.
This staggering number is due to the fact that what is wrong with the existing claims process is that it is still in paper and file mode. For the most part the work flow is passing paper and files. It is a process full of friction that generates many barriers for beneficiaries to successfully receive a payout.
Bobbie highlighted the four main problems:
- Inefficient process
- Legacy systems
- As most life insurance policies are filed in paper format it doesn’t enable for a digital kind of communication with the policy holder for updating their details such as their beneficiaries.
- Unclaimed laws prevent insurance companies to keep the money so they have to engage in costly investigative exercises to find the beneficiaries of the life insurance policy.
How have carriers tackled this problem to date?
Up to now most carriers’ strategy for addressing those issues has been through back end admin system upgrades. Whilst there is no issues with updating an insurance company’s core systems, it isn’t an update that has a fundamental impact on claims processes. As it also takes on average 2 – 5 years to do those updates, claims improvements haven’t happened. Additionally as some carriers look at claims as an expense centre, they don’t always invest sufficiently into it to update them.
Benekiva can integrate with insurance companies current systems and also into the updated admin systems once the update is complete. In the meantime Benekiva can start pulling data from legacy systems and provide immediate customer experience improvement. Even if the data is stored in a paper format, Benekiva is able to digitise its content.
Benekiva started looking at using blockchain in two use cases within a private blockchain:
- Immutable ledger – provide an audit trail of the claim process from the moment the policy is generated to when the payout is made
- “Time travel capability” – enables querying at any point in time instantly
Bobbie recognises that this could have been done without blockchain. However, Benekiva understands the importance of being at the cutting edge of technology and to start experimenting with blockchain in order for the future to explore building a consortium.
From a customer experience side blockchain can help guarantee integrity and once the consortium model is enabled it will be able to service the beneficiary very efficiently with the potential to significantly reducing this stat of 68% unclaimed life insurance.
Benekiva’s blockchain has been developed by Fluree.
What does the future look like?
Making the claim process as seamless as possible is Benekiva’s focus for the next few years. Integrating chat bots, smarter “smart form technology”, fraud detection, blockchain and a lot more to make the claim process for the beneficiaries as smooth as possible. Additionally, Benekiva believes there is an opportunity to make the claims staff easier by providing an efficient workplace that isn’t paper base but digital.
Thank you Bobbie for sharing some interesting insights on automating the claims process with blockchain. If you liked this episode, please do review it on iTunes. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Bobbie a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.
Rank #16: Ep.44 – Blockchain & GDPR
Last week we had the pleasure of talking to Dr. Markus Kaulartz, lawyer at CMS Germany, discuss with us the very hot topic of Blockchain & GDPR. We will try to answer the question of how does GDPR, drafted in a world in which centralised and identifiable actors control personal data, sit within a decentralised world like blockchain? Markus is the co-author of “The tension between GDPR and the rise of blockchain technologies“.
Markus works in the IT law department of CMS Germany with a focus on innovative topics such as blockchain, AI, cyber security and all the data protection issues. Previously to becoming a lawyer, Markus used to work as a software developer.
What is Blockchain?
From a pure legal point of view there are two aspects:
- Blockchain is a database which is distributed and synchronised, whose data cannot be deleted. This definition however is controversial within some quarters as blockchain isn’t considered as a database but it is used to simplify defining it for a non-IT audience.
- Blockchain enables us to move digital assets. This is very important because a receiver of a digital token for example will always know that the sender of the token doesn’t own it anymore. In other words the tokens transfer of ownership emulates the transfer of ownership of real life offline assets. If we look at the transfer of ownership of paper share certificates they presently use a bank as a central intermediary to help identify who is the present owner of a share. In a blockchain world we can theoretically eliminate the need of the bank.
What is GDPR?
General Data Protection Regulation (GDPR) is a regulation in EU law on data protection and privacy for all individuals within the European Union and the European Economic Area. It was enacted in May 2016 but only applied from May 2018. It replaced the former EU Data Protection Directive with a big difference that it applied directly to the member states of the EU without the need for it to be transformed into national laws. The other big difference of GDPR with the former EU Data Protection Directive is the amount of the fines. Under GDPR the fines are up to 4% of the global turnover of a company.
What is key is that GDPR also applies to companies outside of the EU that works with the EU. For example if you’re an Indian or American company who offers services to EU citizen you will have to comply with GDPR regulation.
Personal Data & Application of GDPR
GDPR only applies where personal data is being processed. Personal data is defined as any information relating, directly or indirectly, to a natural living person, whether the data identifies the person or makes him or her identifiable.
Article 4 of GDPR defines Personal Data – “as any information relating to an identified or identifiable natural person (‘data subject’); an identifiable natural person is one who can be identified, directly or indirectly, in particular by reference to an identifier such as a name, an identification number, location data, an online identifier or to one or more factors specific to the physical, physiological, genetic, mental, economic, cultural or social identity of that natural person.”
The key implication is that a person, not a company, can be identified or identifiable. Being identifiable means you don’t necessarily need to have their name, or address of the person, it suffices to have their unique ID and even their IP address. In a blockchain world the public key is considered as personal data as it is related to an identifiable person. Having any of these identifiable data points means that GDRP applies.
If GDPR applies an assessment needs to be carried out to identify which obligations are applicable:
- Inform data subjects with what to do with the data
- Maintain records of processing activities
- Implement technical and organisational measures
- Review in which country the data is stored (i.e. EU or non EU)
- Need a legal basis for the data processing. In general processing of personal data is forbidden unless there is a legal basis. A legal basis might be consent or whether the processing is necessary for processing a legal obligation
A consent needs to be very specific. Getting an informed consent in a public blockchain such as bitcoin is very difficult, if not impossible, as it’s very hard to say on which node the data is stored in which country.
A private blockchain is easier to implement GDPR, than a public blockchain, as you can control the data flows.
CNIL, the French Data Protection Authority, stated that although the public key, in a public blockchain such as bitcoin, is considered personal data, GDPR doesn’t apply because people use it in a purely private context. This is known as the household exemption.
Controller and Processor
In a GDPR context we distinguish between a Data Controller and a Data Processor.
GDPR applies to data controllers and data processors whether or not there are established within the EU. If outside the EU, if such controllers and processors process personal data in connection with offering services or goods to EU data subjects, or in respect of the monitoring of data subject behaviour within the EU, then they have to abide to GDRP.
The Controller determines the process and means of the data processing. The data processor processes personal data on behalf of the data controller. A typical example of a data processor is a hosting service provider which does not determines the purpose of the processing but only stores and processes the data on behalf of its customers (ie. the controller of the data).
In a Bitcoin world the nodes essentially are processors that store the data. However as users of the Bitcoin blockchain we should have data processing agreements with the nodes which is challenging as most nodes are unanimous. Another potential legal framework is to look at the nodes as data controllers which also has the challenge of what happens when the data is transferred outside of the EU.
Markus believes that these legal challenges can lead to the creation of a future EU public blockchain.
Suggestions for Public Blockchain builders
Markus highlights a set of solutions for blockchain builders on how to deal with GDPR:
- Store personal data off chain
- Identify the nodes outside of the EU and prepare legal agreements with each of them
- Set up a blockchain that only uses nodes within the EU
Private blockchains in comparison to public blockchains are much easier to reaching GDPR compliance. Markus proposes two solutions:
1. Deleting Decryption Key
Some companies have business models that require them to store personal data on-chain. As blockchains are meant to be immutable (ie. the data cannot be deleted), this can provide a challenge with GDPR’s “right to be forgotten” clause. To overcome this challenge Markus recommends that personal data should be stored in an encrypted way. If the customer wishes to have their data removed under the “right to be forgotten” clause, then deleting the decryption key related to that personal data will make it inaccessible. CNIL, the French Data Protection Authority, supports this solution as a means to becoming GDPR compliant.
2. Lookup Tables
An alternative solution that Markus usually recommends is to store the personal data off-chain and linking that data to a blockchain via a lookup table.
In his document, “The tension between GDPR and the rise of blockchain technologies“, Markus provides a detailed example of how this could work in a GDPR compliant manner:
“Let’s say you have built a platform that allows people to rent out their cars to those in need of cars. In this case, the blockchain is used strictly as a payment channel and, after payment, a customer receives a unique car token with which to enter the car. For the platform to work, however, there has to be a link between the users’ identities and their public keys. The details of their identities and the links can be kept in an environment where they can be modified and deleted (off-chain). To be extra safe you may even want to oblige parties to create unique public keys using your platform for each relationship. If you destroy the link that has been used as an identifier, all that is left on that blockchain is a public key and its transaction history. The public key is just a string of characters that, in itself, may or may not amount to personal data. Following deletion of the link, whether the data qualifies as either personal or anonymous depends on what is left on that blockchain and the likelihood of link-ability. If all that is left is three simple transactions between two anonymous public keys, the ability to link that to an identifiable natural person may become practically impossible. Therefore, the data that was once considered personal in the GDPR sense, may have morphed into anonymous data.”
You have a lookup table which is the link between the data off-chain and the data on-chain. You have a key on-chain which is associated with another key in the lookup table. That other key refers to the data set stored off-chain. If someone requests their data to be deleted then you can delete the data off-chain and you can delete the entry in the lookup table. Thus the remaining key on-chain will have lost its association with the lookup table key (related to the off-chain data) as that would have been destroyed. The remaining ID on-chain is unanimous and which is thus GDPR compliant.
DPIA – Data Protection Impact Assessment
DPIA is essentially a deep dive into a company’s data processing activities. If a company is required to perform a DPIA, it has to assess the entire process of how data is being handled at a very sophisticated level. A DPIA is usually required to be done if the data processing is likely to be a high risk for the rights and freedoms of a natural person. In the case of blockchain a DPIA is required because of the following reasons:
- When new technology is being used with other data processing circumstances which can lead to a high risk for data subjects
- When data subjects are prevented from exercising their rights
How can data protection principles be fulfilled in blockchain?
The most important point is to apply the principle of privacy by design. That means from the very first line of code that is written a company has to apply appropriate technical and organisational measures to being GDPR compliant. For example:
- ensuring that personal data is correctly encrypted
- data subjects can delete their data
- where is the data stored? Is it stored in other countries or not?
- Is there the appropriate legal basis for the processing of data?
If privacy by design isn’t applied from the beginning then the company runs the risk of having to significantly update their software to being GDPR compliant.
Markus has provided us with some great insights on the challenges of GDPR and Blockchain. If you liked this episode, please do review it on iTunes – your reviews make a huge difference. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Markus a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.
Rank #17: Ep. 42 – Legal aspects of blockchain
For this week’s episode, we are joined by Olivier Rikken, Director of blockchain and smart contracts at Axveco– a consultancy firm based out of the Netherlands focusing on sustainable innovation. Olivier last spoke to us in April regarding smart contracts – this episode focuses on the legal aspects of blockchain and smart contracts.
Since April last year, Olivier has been involved in a wide range of blockchain related projects which include being part of the ISO World Standards working group on smart contracts. In addition to his role as a start-up coach for blockchain-enabled start-ups within and outside the Netherlands, Olivier is part of the governance group for the Dutch Blockchain Coalition and is a guest lecturer at three universities in the Netherlands.
Blockchain in two minutes
According to Olivier, blockchain is a decentralised database – a shared administration system where everyone who wishes to join may do so and participate (reading, writing and validating content.) There is no need for a trusted 3rdparty to monitor the database.
Publication of the “Legal Aspects of Blockchain”
Olivier has recently co-authored a book titled ‘Legal Aspects of Blockchain’ – this book was a product of a collaboration between the Dutch government and the UNOPS (United Nations Office for Project Services.)
Olivier was involved in a working group that published a report on the legality of smart contracts in December 2017. This report drew the attention of the UN and Olivier was subsequently approached with a proposition to co-author a book on smart contracts together with experts from institutions such as MAS (Monetary Authority of Singapore), MIT amongst others.
A powerful opening
“The fourth Industrial Revolution is underway and organizations in the public domain on both national and international front are being confronted with numerous new technologies” – Minister for Foreign Trade and Development Cooperation, Netherlands.
Olivier explains that in the past few years, we have witnessed several technological developments that could potentially disrupt industries as we know them today. An industrial revolution is characterized by a change in the way things are organized and work is carried out.
For example, decentralisation (through blockchain and DLT) can allow us to design new ecosystems and processes – advances in blockchain combined with developments in big data analytics, artificial intelligence and IoT indicate that we may be on the brink of major changes.
Looking at blockchain from a regulatory angle
Olivier believes that prior to forming regulations on a new technology, it is extremely important for law-makers, politicians and lawyers to understand the technology and its implications. Using the example of GDPR and blockchain – he highlights that there is a lot of concern regarding GDPR compliance issues with blockchain. However, as he points out, there isn’t a single version of blockchain (public v/s private, permissioned v/s permission-less etc.)
Formulating regulations concerning blockchains is particularly challenging– though regulations tend to be as general as possible – it is extremely important for regulators to address different types of blockchain to promote enterprise adoption and increase confidence. Thus, Olivier feels regulations (today) cannot be general since there are very specific questions that need answering.
Olivier raises some questions (that are still being discussed) from a regulatory perspective such as who is accountable for blockchain, how is privacy guaranteed and where/how can traditional jurisdictions apply (if at all)?
How will legal jurisdictions apply?
During the discussion, Olivier points out that there is still a lack of consensus regarding which legal jurisdiction applies in cases where transactions take place between parties in different legal jurisdictions.
Olivier provides the example of Swarm City, a P2P lending platform built on the Ethereum network. He explains that P2P deals can take place between multiple parties in different countries and the infrastructure (Ethereum in this case) is hosted by multiple parties in different countries (recall nodes run the Ethereum network.) This presents a legal nightmare and a solution is yet to be proposed.
There is one case for which the answer seems clearer – private permissioned blockchain networks (for example – B3i.) According to Olivier, if something goes wrong, the owners of B3i (the incorporated entity and its representatives) could be held accountable – however, it is difficult to pinpoint the party/parties responsible for a public permissionless protocol (such as Ethereum.)
Decentralisation – beyond business and into dispute resolution
Olivier brings up an excellent point – the blockchain community has been working on various initiatives – an extremely popular model for blockchain projects is that of a DAO – decentralised autonomous organisation. A DAO can be thought of as a company built using code (smart contracts.)
A DAO is not managed by a (small) group of individuals (C-suite, employees etc) rather it is managed through a decentralised voting mechanism which entitles token-holders to be owners and managers of the DAO.
With the arrival of DAO’s, we may even see traditional dispute resolution process (through a court with a judge and jury) be replaced by a blockchain forum-based dispute resolution system where a simple/special majority of voters (token-holders, validators etc) decide on the outcome of disputes.
An illustrative example of this dispute resolution mechanism is provided in the white paper published by Nexus Mutual, a decentralised mutual built on the Ethereum network – Hugh Karp, CEO of Nexus Mutual, wrote a blog-post on our website recently.
As Olivier mentions, emergence of new governance structures for blockchain projects will pose an interesting challenge to lawmakers.
Blockchain may not provide a complete solution
Olivier states that in the foreseeable future it may be possible for smart contracts to automatically trigger a dispute resolution mechanism (in case of a disagreement between parties) which could be AI based. However, as he points out, there are ethical concerns – would we be willing to let a business rule-based and self-learning algorithm make decisions on our behalf?
Voting with accountability
Olivier was asked for his opinion regarding the idea that parties holding voting rights (token-holders, full node operators etc) could be held legally responsible for errors or faults. Olivier responded by suggesting this idea has a problem – think of a case where software downloaded on a (hardware) device malfunctions – it would be incorrect to blame the hardware provider once the cause has been fully established. Similarly, in most protocols, voters are analogous to hardware providers and the applications which run on the protocol are analogous to software.
Legally binding smart contracts
During our previous conversation with Olivier, he reminded us that ‘smart contracts’ are not equivalent to legal contracts – they are merely pieces of computer code. Since April, there has been a lot of work (upwards of 50 initiatives) in the blockchain space with regards to building legally binding smart contracts.
Smart contracts could be attached to an individual through Self-sovereign identities which allow an individual to identify themselves digitally and retain ownership of personal data (something that hasn’t been possible until the arrival of blockchain.) A popular project in this space is Sovrin– a public permissioned ledger being built to support self-sovereign identities. A key challenge here is to understand what really constitutes an identity – is it a name, a date of birth or biometric information or a combination of all the above?
A viable alternative (for the short to medium term) is the use of in-person (physical) verification of a wallet address – though this method would work well it goes against the principle of decentralisation since it would require some existing entity to carry out authentication.
The future of regulation concerning blockchain
“With any technology we overestimate the short-term effect and we underestimated long-term effect.”
Olivier points out that regulators are moving fast and there is a lot of collaboration within the industry to speed up formulation of regulations. According to him, many questions that have been raised don’t require new regulations to answer – he gives the example of ICO’s (Initial Coin Offerings) and STO’s (Security Token Offerings.) Several countries have indicated that they will treat (presently) these offerings as being equivalent to traditional security offerings.
Furthermore, as Olivier suggested earlier, regulation for permissioned blockchain will not be particularly challenging since such protocols represent the kind of systems law-makers have seen in the past. He sends across a ‘practicse over theory’ message and encourages companies and individuals to continue innovating and run into (regulatory) walls – this will allow regulators to take note of scenarios that may potentially be overlooked during discussions.
Olivier believes that the blockchain protocol of the future will be a hybrid between permissioned and permissionless – he believes regulatory aspects will be much easier to address on a protocol that is (to some extent) permissioned. Interoperability will be key in the next five years for blockchain.
Olivier shared some great insight into the progress that has been made with regards to regulations concerning blockchain and smart contracts.
If you liked this episode, please do review it on iTunes – your reviews make a huge difference. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Olivier a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.
Rank #18: Ep.27 – Lloyd’s and Blockchain with Inga Beale – CEO of Lloyd’s
This week we bring you a very special episode, straight from the heart of London’s insurance industry. Our guest has provided leadership, inspiration, innovation and the embracing of all communities irrespective of gender, race or religious affiliation. We are proud to have with us Inga Beale, CEO of Lloyd’s of London. We will be discussing blockchain and the future of Lloyd’s. As Insureblocks is based on community, Inga will also be answering the questions you submitted over the past weeks.
Blockchain in two minutes
A blockchain is a shared, immutable record of transactions. Blockchain’s traceability and cryptographic verification make it an exciting prospect for the insurance industry.
Transactions can become particularly complex and involve numerous parties. A claim, for example, usually involves the claimant, the policyholder and the customer. However, it can also involve a third-party loss adjuster, a lawyer, an underwriter, a company claims adjuster, brokers and so on. The beauty of blockchain is that it creates a single, shared, transparent record that every party in the transaction can rely on.
Lloyd’s of London
Lloyd’s is an insurance market comprised of over 80 insurance syndicates. Lloyd’s is unique as these syndicates are competitors but also collaborate in sharing the bigger risks. In its 330 year history Lloyd’s has always been there to ensure risk never came in the way of human ingenuity and support human progress through the good and the bad, whether that was launching a satellite into space or the Titanic’s fateful voyage.
Lloyd’s in the changing landscape
The insurance industry has found itself at a point of unprecedented change. On the technology front blockchain, IoT, AI and robotics are ready to drastically update the industry. Incumbents also face a huge number of new entrants including insuretechs and their innovative, customer-centric propositions, Amazon and possibly even Chinese firms like Zhong An and Ping An. As Inga mentioned at the Dubai World Insurance Congress, the insurance sector risks “sleepwalking” in this new world if it remains complacent.
Inga has therefore taken active steps to ensure Lloyd’s remains a leader through this changing environment. While Lloyd’s has been known to be very traditional in some ways, such as being very paper-based, Inga informs us Lloyd’s has turned a corner and is on its way to being a leader in the new world. Unlike startups, whether insuretechs or fintechs, which usually focus on a single solution, Lloyd’s is focusing on the whole industry. It is working together with new entrants to make sure it is getting the best of these new ideas and piece them together to complete the bigger picture.
Driving change within Lloyd’s
Inga Beale and Shirine Khoury-Haq, Lloyd’s COO, have shown a keen interest in blockchain since 2015. This resulted to the London Market Target Operating Model (TOM) initiative launching in 2016, which now runs a major consultation to see how blockchain can improve the industry. Here is a copy of their whitepaper.
However, bringing change in an organisation as large and unique as Lloyd’s can be challenging. Change disrupts people’s lives, who can often feel threatened by it and worry about how it will affect their jobs. It is not easy, therefore, to convince all 34,000 people engaged in Lloyd’s that change is a good thing. Inga tells us the secret lies in getting other people excited and open to seeing the benefits blockchain and other innovative technologies can bring.
Blockchain investment in the insurance industry
The multiple blockchain PoCs and pilots multiple blockchain PoCs and pilots in the insurance industry are valuable but timid steps compared to the $1.7billion annually invested by the financial industry in blockchain technology. Will the insurance industry have to wait until faced with a crisis before moving forward?
Inga informs us embracing change when the industry is doing well can be more difficult due to a fear of the unknown. She recalls how in the ‘90s people were resisting outsourcing the processing of catastrophic modelling to India. The industry’s appetite for change has not changed much since. Even the reinsurance industry, whose finite group of participants make it well suited to testing blockchain, has been hesitant in its adoption.
Inga believes the best way to combat the complacency is to focus on improving the customer experience. Lloyd’s TOM is now focusing on claims and how to make claim payments in a quicker, easier and more transparent way.
Improving the customer experience is a common theme with our previous episodes, such as our episode with AXA’s Laurent Benichou. However, the definition of who the customer is can vary. It can include the broker, the underwriter or the policyholder. For Inga, the defining feature of a customer is having the willingness to buy a service and the money to do so, ruling out intermediaries.
Placing Platform Limited (PPL)
In an effort to promote innovation in the insurance industry, Lloyd’s has launched a major initiative called PPL. PPL is an electronic platform that aims to replace paper with fully auditable electronic records, providing features such as real-time confirmation of cover.
While PPL has not been implemented using blockchain, Inga informs us Lloyd’s is open to utilising new technologies to improve PPL. Blockchain’s shared ledger can fit perfectly in an environment where many underwriters share the same risk. It is therefore particularly well suited to tracking the placement of risk in Lloyd’s, a subscription market involving numerous stakeholders.
We at Insureblocks strongly believe in promoting diversity and inclusion, with one of our previous episodes exploring the issue of diversity in blockchain. Inga is a champion of diversity and Lloyd’s has made great progress under her leadership thanks to the Inclusion@Lloyd’s initiative.
While the business case of having a diverse team is well established in terms of innovation and penetrating new markets, Inclusion@Lloyd’s has higher aspirations. Its aim is to create an inclusive workplace where everyone is embraced and respected regardless of their background.
Lloyd’s Dive In festival, part of Inclusion@Lloyd’s, is a celebration of diversity and inclusion. This is the festival’s fourth year and this year’s theme is about taking action. This can take many forms:
- Including somebody in a conversation.
- Addressing or calling out inappropriate behaviour.
- Challenging existing policies, processes or procedures at work.
- Empathising with people from a different background.
A distinguishing feature of Inclusion@Lloyd’s is that it is led from the top of the hierarchy, making sure CEOs and senior management understand the importance of diversity and are open to sharing their real-life experiences about diversity and inclusion. Inga admits there is still a long way to go but Lloyd’s is well on its way to leading the way in diversity and inclusion.
Insureblock’s community questions – YOUR questions!
Here at Insureblocks we believe blockchain is all about community. This is why we gave you the chance to join us in this episode by asking Inga your questions.
Transforming Lloyd’s is particularly challenging because Lloyd’s is a market with a large number of independent stakeholders. However, Inga notes there are two particular qualities that help transform an industry:
- While people are now getting more receptive to blockchain and innovation, it has been important to be patient and understanding of people’s issues when bringing them onboard with new ideas.
- Influencing such a large market is incredibly challenging but being excited and showing people how innovation will improve their companies will get them excited too.
2. “The US and European carriers seem to be coming to terms with the commercial need for financial and crypto insurance products. Are Lloyd’s ready to support this growth market? Can we expect to see increased levels of enthusiasm towards Lloyd’s insurers considering this space?” Georgia Gough, Paragon Brokers
When cryptocurrency was newer, Inga admits Lloyd’s was having reservations about how reputable, safe and useful it was going to be. Now, however, Lloyd’s has become more open to providing crypto insurance products. The global leaders of banking and finance have been experimenting with cryptocurrency and Lloyd’s is ready to follow the market and play a bigger part in the crypto insurance space.
3. “According to Insurance Business UK, PPL is now used on 16% of policies written ever since February. A significant surge in the last couple years since the platform has been introduced. What do you feel is the reason for the sudden surge and do you feel there is room for PPL in a possible future blockchain world?” Natalia Zurowsky, PremFina
PPL was launched in phases, focusing on a single area at a time. It started with terrorism because it involves a smaller community of brokers and underwriters. Gradually, it launched new products every few months and now PPL covers nearly all the policies underwriters cover in Lloyd’s and the broader London market. This is why it was not possible to get a high level of adoption to begin with.
The second step has been to set market adoption targets for PPL. The target for the second quarter of 2018 was a 10% adoption rate, which Lloyd’s exceeded. The target for the next quarter is 20% and Inga is hoping the PPL adoption rate will reach 30% by the end of the year.
As far as blockchain is concerned, the support is definitely there. Inga informs us PPL is a live platform Lloyd’s will keep modernising, so perhaps blockchain will become part of PPL in the coming years.
4. “Given that human is centric to the Lloyd’s value proposition. Do you feel PPL is taking away from what differentiates Lloyd’s from other providers of risk capital and do you see a future where Lloyd’s becomes a fully electronic platform?” Rahul Mathur, Willis Tower Watson
Lloyd’s is focused on becoming digital and will soon provide a host of products that can be traded, placed and accepted electronically. However, the essence of Lloyd’s will always be its people and the relationships of trust they form. Lloyd’s brokers and underwriters have always been there to listen and help people with their innovative endeavours. These conversations will continue to happen face to face. In this sense, the physical aspect will remain.
Inga draws an example from the Netherlands. When an insurance market decided to go fully digital, they decided to close the market and send everybody to their offices. However, in the following years the need for a physical space and meeting people in person became apparent. In the end they reopened the market but in a different format.
Lloyd’s is also keen on modernising and the underwriting room will definitely look different in five years. However, people will still be its defining element. The relationships, discussions and negotiations are at the heart of Lloyd’s success and the cluster effect all around Lloyd’s in the City of London is part of what makes it unique.
5. “As a champion for diversity and inclusion efforts in the risk and insurance industry. With you stepping down at Lloyd’s what work can we carry forward to keep your legacy alive?” Dante Disparte, Risk Cooperative
Diversity and inclusion are here to stay. Thousands of people from the insurance industry have come together to fight for diversity and Lloyd’s Dive In festival has engaged people across the entire insurance sector including life assurers, brokers, consulting firms, lawyers and more. Thanks to all these people Dive In has gained a lot of momentum, with a presence in 27 countries and over 50 cities, including a gender-focused event in Saudi Arabia.
Inga tells us this all became possible because the industry is full of wonderful people who are willing to fight for change. Embracing diversity is necessary for insurance to become a more modern, dynamic environment that people want to join regardless of their background. We know that here at Insureblocks, all of us will do our best to keep Inga’s legacy alive.
This has been a truly special episode for us. We got to discuss the future of the insurance industry and Lloyd’s of London, focusing not only on innovation but also on diversity and inclusion. We hope you enjoyed this episode as much as we did.
If you liked this episode please do review it on iTunes – your reviews make a huge difference. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. We are sad to hear Inga will soon be leaving Lloyd’s but wish her best of luck with her next endeavour.
Thank you Inga!
Rank #19: Ep.39 – Blockchain from a Nationwide perspective & lessons learnt
This week’s episode is slightly different from the norm – it was recorded off the fly and in the moment as a fireside style discussion. Walid had the opportunity to speak to Timothy Dwyer and Michael Fulton from Nationwide. During this podcast, we get an overview of Nationwide, discussed their perspective and lessons learnt on blockchain and its recent Proof of Insurance POC.
First a little about our guests:
Timothy Dwyer, Vice President & Assistant Treasurer to Nationwide, returns to our podcast to provide some further insight into blockchain from Nationwide’s perspective. Tim’s role at Nationwide covers banking, credit and debt finance.
Michael Futon, Associate VP Technology Innovation, makes his debut appearance. Michael is the representative for Nationwide at the RiskBlock Alliance.
What is blockchain?
Michael answers this question from an innovator’s perspective –
Blockchain allows participants to do things differently – its key properties are its decentralised nature and immutability.
How important is immutability?
Michael points out that it is difficult to find perfect use cases for blockchain. Walid posed an interesting question – wouldn’t tamper evidence in a system/solution be enough? Michael and Tim both agreed that in many use cases, it would be more practical to have a system that permits (but records) changes as mistakes are bound to happen!
Although many use cases do not warrant the need for immutability, some specific cases such as asset transfer do require immutability (to prevent fraud and other forms of charge-back scams.) In some cases, reversibility may in fact be a desirable property – as referenced to during the discussion, in 2016, we saw the hack of the (first) DAO (‘DAO’ is an acronym for a ‘Decentralised Autonomous Organization’, recall that recently Hugh Karp from Nexus Mutual made an appearance on Insureblocks with a guest post– the Nexus Mutual is an example of a DAO.)
Following the subsequent collapse of the DAO due to this hack, there was a hard fork on the Ethereum network – this split the network into ETH (Ethereum) and ETC (Ethereum Classic) – the hard fork represented a split in consensus – some parties wanted the DAO attack victims to be returned their money, but others did not. The DAO attack is an excellent example of the case where parties agree to “reverse” transactions on an otherwise immutable network.
As our speakers point out, immutability and irreversibility need not be mutually exclusive – take the example of storing your books of accounts on the blockchain. The standard practice in the accounting profession is to never delete an incorrect transaction but to make a rectifying entry – the same idea may be applied to a blockchain – errors made may be corrected in subsequent blocks with a reference to the block containing incorrect/inaccurate information.
An introduction to Nationwide
Nationwide is a leading P&C and Life insurance company based out of the USA, it prides itself on writing a highly diversified line of business.
Blockchain at Nationwide
Timothy points out that the interest in blockchain stemmed from the lunch-time discussions surrounding cryptocurrencies in 2015. These discussions matured and lead to the formation of a monthly blockchain forum (which still runs today.)
Michael and Timothy insist that Nationwide is still in the exploration/educational part of their journey with blockchain and they are actively observing how networks are developing.
DLT beyond blockchain
The CEO of Hedera – the company behind the much-hyped hash-graph technology has delivered talks at Nationwide – the company is demonstrating willingness to explore DLT solutions beyond blockchain.
Nationwide has observed that hash-graphs are able to handle a larger volume of transaction flow than blockchain currently and a potential POC using hash-graphs is in the pipeline! It is important to note that it is still early days for Distributed Ledger Technology. Hash-graph may perform better than Corda currently, but there is no guarantee this will be the case even in the short term.
Our guests point out that it is extremely important for an organization to balance technology and product innovation. Furthermore, the management must be able to prioritize areas of the business that are lagging behind competition or falling short of market expectations.
Proof of Insurance POC with the RiskBlock Alliance
The Proof of Insurance POCis Nationwide’s first blockchain project – as pointed out earlier, since the firm is in the educational phase of its journey with blockchain, the focus on this project was to validate the hypothesis that blockchain has the potential to revolutionize the way business is conducted currently.
Nationwide already has a proof of insurance solution available to existing customers on their mobile phone – the focus of this project was not on the value add to customers but was to gain experience in working with the RiskBlock Alliance. The next step will be to use blockchain in a case which offers greater value add for both the customer and Nationwide.
Discussion about blockchain projects outside of Nationwide
Fizzy by AXA
Fizzy is a parametric flight delay insurance product offered by AXA powered by the Ethereum blockchain network. Policies may be purchased online via the Fizzy website and claims payout is automatically triggered if a flight is delayed by two hours or more.
In episode 22, Laurent Benichou, spoke about Fizzy at length and sent across an extremely powerful message that it is no longer AXA who decides whether the customer will be compensated rather it is the code which makes these decisions. At the recent FinTech Connect 2018 event in London, Alexandre Clement, Product Owner – Fizzy at AXA, presented some latest updates on Fizzy.
The discussion brought up some interest points such as the notion that AXA may be able to charge a premium (over regular flight delay insurance prices) to customers due to the guaranteed payout in case of a delay (an element of trust induced by blockchain.) Furthermore, blockchain will reduce policy administration and claims handling costs which may allow insurers to offer previously financially unviable products (such as micro-insurance, which is presently being piloted by Aon, Etherisc and Oxfam in Sri Lanka!)
Corda-based blockchain projects
There are several insurance related projects being built on the R3 Corda platform. The most well-known include the B3i products (property CAT XoL and commercial insurance), Insurwave (commercial marine insurance product led by EY) and the Canopy 2.0 platform offered by the RiskBlock Alliance.
The engineers are R3 have been hard at work to develop “Business Networks” with the goal of allowing Corda DApps to interact with each other within a “compatibility zone” – this prospect of cross-project interoperability may unlock huge value. An example would be the embedding the B3i offering with that of Marco Polo (a trade finance initiative built on Corda.)
The transformational impact of blockchain
Blockchain is bringing to insurance the same transformation that standardization of containers brought to the marine shipping industry in the 1950s – blockchain may be thought of as the catalyst driving various market participants to work together and develop ecosystem solutions.
In the insurance industry, the adoption of the ACORD data standards is being championed by both B3i and the RiskBlock Alliance – having a common data standards across platforms and across the industry will pave the way for interoperability between different blockchain projects.
Michael and Tim have shared some great insights with us on their learnings on blockchain.
If you liked this episode, please do review it on iTunes – your reviews make a huge difference. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Michael or Tim a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.
Thank you, Tim & Michael
Rank #20: Ep.38 – ‘Mutualisation’ of insurance through blockchain – insights from VouchForMe
In this week’s episode we get an insight into how blockchain can enable ‘mutualisation’ and learn about social insurance from VouchForMe. Our guest is Matt Peterman, Founder, VouchForMe and InsurePal. Matt’s experience spans private equity and fraud detection in the insurance industry. It was roughly 3 years ago that Matt realized that ‘mutualisation’ in insurance was gone – this realization led to Matt co-founding InsurePal.
Breaking down the jargon
What is blockchain?
“Blockchain is a mechanism where we can send information and money at the same time through non-centralized institutions.”
Matt provides the example of Ethereum by highlighting that instead of sending money through Swift, people can now send money through a network for 25,000 miners (who form the Ethereum network) in a P2P (peer-to-peer) manner.
What is Ethereum?
“Ethereum is a software of the future (economy.)”
Matt makes a profound statement that Ethereum is ‘a software’ and not ‘the software’ i.e. it is still early days in the blockchain/crypto world and only time will tell which software (public blockchain) prevails and reaches mass adoption.
In this light, a recent article published on CoinDesk sheds some light onto why public blockchains are yet not suitable for enterprise needs. There are indications that the technology needs time to mature to become enterprise grade.
Permissioned blockchain v/s Ethereum (public blockchain)
Matt highlights that the Ethereum network is secured by over 25,000 nodes whereas a permissioned blockchain network implemented by a consortium might have as few as 4 or 5 nodes securing the network.
A node may be thought of as a point where information is confirmed, stored and validated.
The notion of ‘mutualisation’
From an underwriter’s perspective
From his experience in fraud detection, Matt recalls that there is a lot of opportunistic fraud and premium leakage in the insurance industry today. The Association of British Insurers concluded that there is one insurance scam roughly each minute!
At the point of underwriting, there are numerous scams such as prospective policyholders claiming they have a garage for their car, when, in-fact they do not. Insurance companies today are trying to fight fraud by using big data or by trying to link customer provided data with other data-points including social media (Facebook, Google etc.)
A mindset problem
Matt points out that people think of insurance as a necessary evil. In some cases, insurance companies are thought of as government-sponsored entities which can be ‘used’ to obtain money from time to time!
As Matt suggests, most people forget that these malicious activities increase the cost of claims which in-turn increases the premium charged to the end customers. In the UK alone (for FY 2016), insurance fraud cost the industry $1.3 billion and the industry spent $200 million trying to combat fraud. The origins of insurance can be traced back to Edward Lloyd’s coffeehouse where parties agreed to share risk (which reduces fraud) and it is this notion that VouchForMe is trying to bring back using blockchain.
The notion of 3rdparty underwriting
Traditional underwriting involves pricing using data made available by the customer and augmented data (with permission) from Facebook, Google etc. At ‘VouchForMe’, prospective policyholders are asked if they have many friends or family who would guarantee or vouch for them. ‘Vouching’ for a prospective policyholder means pre-authorizing a credit card to pay out a maximum of pre-agreed sum in the event of a claim by the prospective policyholder.
There are two advantages that this scheme has:
- Reduction in adverse selection – Prospective policyholders are much more likely to be good drivers or good home-owners since they have a counter-party willing to vouch for them. This means that ‘VouchForMe’ has overall a better than average risk pool.
- Countering moral hazard – Since a policyholder has a counterparty (usually close friend/family) vouching for them, they are less likely to make a fraudulent claim.
The notion of ‘mutual’ endorsements
Matt was asked a question about why counter-parties would be willing to dedicate a portion of their credit card limit to vouch for an insurance policy for their friend/family.
Matt responded by highlighting that endorsements are usually mutual– which turns out to be an excellent sales tool. Mutual endorsements also foster stronger relationships.
As Matt points out, when a close friend or family member meets with a motor accident, your first response is not how do you plan to replace your car (hopefully) but it is more along the lines of expressing concern regarding their physical and mental wellbeing. Quite often, you may even lend your friend some money to help them! ‘VouchForMe’ is trying to translate the sympathetic nature of human beings into insurance contracts (smart contracts) on the blockchain.
Why does ‘VouchForMe’ need blockchain?
Matt believes that blockchain provides a neutral tool to allow customers to decide their destiny and decide who will support them along the way.
Matt explains further that the ‘VouchForMe’ proposition could have easily been built without blockchain but that lead to a loss of the ‘neutral’ position. Many clients are scared today of handing over their data to companies and without blockchain, this consumer data would have to be stored on centralized servers.
Why didn’t ‘VouchForMe’ use Facebook as the medium?
Matt points out that this is a question he is often asked by insurers and the reason for not using Facebook as a medium is due to GDPR. If an insurer wishes to obtain additional underwriting information, they must go to Facebook, Google or other centralized data stores.
Matt highlights that GDPR aims to put customers in control of their own data and insurers are extremely well placed to facilitate the return of ownership of private data back to customers. In fact, insurers would stand to gain a lot from notion of ‘self-sovereign data identity’ as the insurer would not have to go through an intermediary (Facebook or Google) to obtain accurate (and verifiable) customer data to carry out underwriting.
It is also well-known that centralized institutions such as Facebook are large targets for cyber-attacks whereas public blockchains (Ethereum, in particular) have yet to be compromised as a whole (hacking a single node is possible but hacking the entire network is a feat as yet unaccomplished.)
Responsibility for KYC and identity verification
Matt mentions that the KYC process is carried out at the insurance companies end to ensure that there is no money laundering taking place. He goes on to mention that money laundering is a problem in life insurance but no so much in P&C insurance which is the current focus of ‘VouchForMe’.
Matt provides an example to illustrate the sales process – at the point of sale, the insurer informs a prospective policyholder that there is a special offer which reduces the premium by a certain amount if the policyholder can bring three people to vouch for him/her up to some pre-specified amount each.
As described earlier, not only does this sales process reduce risk but also it serves as an excellent marketing tool – people who vouch for others may wish to try the product offering for themselves!
If a claim is triggered, the first notification of loss (FNOL) goes to the carrier and this automatically triggers communication to the guarantors informing them about the amount that is due from them due to the claim.
As a result of this process, the insured usually bears the cost of small claims and is discouraged from making fraudulent claims or inflating claims amounts.
Where is information stored?
The policy sits on a centralized system whereas information regarding the relation(s) guaranteeing the policyholder sits on the Ethereum blockchain. ‘VouchForMe’ currently works on a hybrid data storage model – this would allow partner insurance companies to expand their existing customer-base to include individuals who are skeptical of storing too much personal information with companies.
How does blockchain enable the ‘VouchForMe’ model?
As Matt pointed out earlier, the ‘VouchForMe’ model does not require blockchain but blockchain enables privacy of data through Zero Knowledge Proofs(ZKP). Zero Knowledge Proofs allow verification of some information held by the customer without requiring the customer to release the information.
It is important to note that ZKP provides probabilistic certainty about the information held by the customer i.e. a carrier may know with 99.99…. % probability that the customer has $100 in his account (but, the carrier doesn’t know exactly how much money the customer has).
Why Ethereum and not a permissioned blockchain?
Matt highlights that ‘VouchForMe’ aims to be a sustainable offering and hence, long term viability of the product is key. Since ‘VouchForMe’ is blockchain enabled, the life-span of the product is limited by the life-span of the blockchain protocol it is built on (Ethereum in this case.)
According to Matt, since we are in the early days of blockchain, we could potentially see some large (permissioned and public) blockchain protocols become redundant within the next few years. However, he believes the Ethereum community has a large pool of developers who are active and engage in constant development of the network. Thus, he feels that Ethereum may be in better position to survive in the longer term as compared to some private blockchain protocols.
In addition, Matt indicates that public blockchain protocols such as Ethereum may be safer for data storage and transmission since they are truly decentralised(Ethereum has over 25,000 nodes) as compared to permissioned blockchain protocols which may have fewer than 10 nodes securing the network. The number of nodes determines how difficult it is to hack the network.
The journey ahead
Matt points out that it is not necessary for insurance carriers to understand blockchain completely – he takes the example of the internet which is widely used today by almost everyone but very few understand how the internet works.
‘VouchForMe’ is currently running three pilots spanning motor and home insurancein the Netherlands and Switzerland. Since these pilots are still in their early stages, Matt does not have any datapoints to share. However, he anticipates that by January or February 2019, there will be enough traction to extract meaningful statistics.
Matt has provided some excellent how blockchain can enable ‘mutualisation’ in the insurance industry and explained the notion of ‘social insurance.’
If you liked this episode, please do review it on iTunes – your reviews make a huge difference. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Matt a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.
Thank you, Matt!