How Blockchain technology might transform wholesale insurance

Blockchain also known as the mutual distributed ledger technologies is perceivedd as a game changer in the insurance industry. It is observed that almost all companies in the financial sector appreciate the possibilities which give the implementing of Blockchain technology.

However, not many of them know how to react and how to make use of this innovative solution. Jonathan Howe, PwC UK Insurance Leader, claims that “Above all, blockchain technologies can help the wholesale insurance sector fulfill its role in underpinning the global economy more efficiently.”

This computer data structure has the following capabilities. It is mutual- blockchains are shared across companies. It can be easily distributed because blockchains are multi-locational and every user can make his or her copy. Moreover, they are immutable- once the transaction is written it can not be erased along with many copies. The blockchain can also be public or private. A private blockchain is not visible for everyone to read.

Recently, there was a significant discussion around the ‘permissioned’ and ‘unpermissioned’ blockchains. In the case of unpermissioned blockchains (f. ex. cryptocurrencies), anyone can update the blockchain without the special agreement. The conclusion is that the permissioned blockchains are much more suitable for the industry. Furthermore, these type of blockchains can cope better with data protection legislation. It is considerable that the initiatives do not have to be initiated by the central authority. It gives the chance to market participants to collaborate and explore what works in the most suitable way.  

The key question is in which industries the blockchain may appear to be the best solution. The market participants taken mainly into the consideration are brokers, underwriters, insurers, trade bodies, regulators or reinsures. The list of potential use cases is even longer: placement and contract lifecycle- documentation, claims management, proof of insurance, managing policies for multinational clients, inter-firm accounting reconciliation and managing a global health policy.

The potential for blockchain to generate significant value to financial institutions is enormous. The recent survey conducted by Goldman Sachs estimates that in the banking industry use of blockchain in Know Your Customer/ Anti-Money Laundering could save $2,5bn of the estimated $10bn global costs. This new technology will enable not only to improve efficiency, reduce costs but also give a way to providing financial services of the higher standard.

The financial institutions mention the difficulty related to the fact that a process change using new technology has to come from improved interactions between many market players rather than from improved internal processes. Peter Teresi from Acord claims that “The way to develop the standards it to get involved at the process design stage.” These companies are constrained by risk and costs of implementing a new system. However, there are some examples of innovators which faced that risk. In June 2016 Allianz revealed a prototype for using blockchain in settlement of catastrophe swaps and bonds.

To sum up, it is necessary to point out that there so many problems- inefficiency, delays, cost or difficulties with access to information- which can be solved by blockchain technology.