Blockchain use cases in marine insurance
There is no shortage of speculation about the effect that distributed ledger technology (a database held and updated independently by several participants in a larger network thereby securing the database itself without the need for a third party) will have on insurance. Yet despite the fact that several insurers have identified blockchain as a key technology to automate back office operations and regulatory compliance, the case for distributed ledger technology within insurance remains very much unclear. What is clear however is that insurers and startups are taking its potential very seriously, and the emergence of smart contracts for marine lines may prove to be the first use case for blockchain in commercial insurance.
Currently, the distribution of marine insurance consists of ship owners, operators, brokers, insurers and re-insurers. This convoluted process involves multiple intermediaries with much information lost in the process. Recognizing this complexity, global shipping giant, Maersk, has developed a blockchain based marine insurance service called Insurwave. The current version of Insurwave consists of a database of vessels that sets the price of hull and machinery insurance with pre-defined pricing algorithms. Once coverage is approved, policy documents are automatically issued to ship operators. Insurwave aims to insure 1,000 commercial vessels this year and will automate more than half a million ledger transactions (each ‘transaction’ represents an action on the policy). Additionally, Insurwave handles invoicing claims, and conducts regulatory checks and audit trails.
Traditionally, when a ship is planning to enter a zone where the premium needs to change, the ship operator would inform brokers who would then notify the insurer. Now, a preconfigured GPS will signal the intended route in advance and a smart contract will be issued by the insurer based on location co-ordinates that can be authenticated through an offline ‘oracle’. Oracles are a central feature of blockchain architectures and, for marine insurers, the existence of this oracle represents the key differentiator of blockchain based use cases for marine insurance compared to blockchain use cases for other lines such as health insurance that necessitate human involvement to submit and assess claims, and are therefore subject to compromise. In this case, the ability to validate and audit a ship’s location data (from which speed, sailing patterns and weather conditions can be gleaned) means this data is wholly incorruptible and therefore applicable to blockchain.
Ultimately, the fact that marine insurance relies heavily on location data that can be independently verified means initiatives such as this on by Maersk not only demonstrates the potential for blockchain use cases within commercial insurance, but also offers a glimpse into the future of marine insurance, one that eliminates friction by creating a seamless interface between ship operators and insurers.