Blockchain Innovation in the Insurance Industry
Everybody’s doing it
There are over 1,000 blockchain technology companies listed on Venture Scanner. Between them they have raised over $8bn in funding, mostly since the start of 2017. Specifically in insurance, Shefi and the team at Coverager have recorded 126 public announcements of insurance blockchain initiatives here. As comprehensive a list as this is, it still doesn’t tell the whole story. I know of many more blockchain initiatives going on across the insurance industry that have not been made public.
Regular readers of mine know that I am a fan of ChainThat and more recently their partnership with the financial services focused Corda platform from R3. In November 2017, ChainThat announced a Series A investment from Xceedance, which has been followed with a partnership with Send Technology. ChainThat are included in the list of Top 10 blockchain solution providers 2018 in Insurance CIO Outlook.
My point is that in the short space of just a couple of years (I wrote my first Blockchain article in 2015 on Everledger when there was hardly anyone focused on insurance), the number of insurance specific blockchain technology firms has exploded. And who would have thought that Inga Beale, the CEO of Lloyds of London would be defining blockchain in under 2 mins in this podcast?
The question is why the interest in blockchain from insurers?
Insurance has plenty of problems that need solving
The simple answer is that insurance is a horribly inefficient, sluggish and opaque business. It is overly dependent on analogue processes that are no longer fit for purpose in a global digital economy. This is why blockchain and distributed ledger technology is generating so much interest across the insurance industry.
Let’s take reliance as one example (of many). Insurance is an industry built on the foundations of trust. And yet, my word is my bond has no digital equivalence. Until now. The problem today is that each party, and there can be many of them in an insurance transaction, cannot rely on any of the other parties in the transaction. So they all have to repeat the same steps as each other.
Take a common due diligence process such as KYC. Each and every party has its own KYC process, checking the sanctions lists, certifying the source of funds, validating the beneficial owners and so on. Every separate party in the transaction repeats the same process.
BTW, this also happens to be the case inside many insurance firms where separate business units cannot and will not rely on other divisions with the same organisation.
It’s a compliance issue
Every Compliance Officer and Risk Officer will be telling their teams that they can only rely on their own due diligence processes. It’s not that they don’t trust the capability and integrity of the other parties. It’s a question of provenance. If Party A relies on a compliance process completed by Party B, and then is found to have failed in some way, the buck stops with Party A.
However, if provenance can be assured, then it can be relied upon. And if the parties are all approved members within a consortium running on a private blockchain, then reliance can indeed be relied upon.
This is just one of the reasons why blockchain (and distributed ledger technology) has the potential for a 10x improvement in operational efficiency. Once a document or process is validated, approved, timestamped, locked down, then it is (a) visible to all parties at the same time and (b) it can be relied upon.
Because this is an automated and near instant process, it removes the requirement for each party to have their own versions of the same job function. A task will be done once and shared by everyone. That’s how you drive 10x operational efficiency improvements.
The power of the Consortium
Of course, to achieve industry wide benefits needs industry wide adoption. Being the only one with a blockchain solution is like being the first person to buy a telephone. This is one of the challenges to the adoption of blockchain tech in the back office of the insurance industry. The fact is that blockchain technology needs to be used by multiple parties across the value chain to deliver meaningful benefits to all stakeholders.
This is where the power of the consortium lies in the insurance industry.
B3i was the first and has evolved from an industry collective into a commercial startup. Their first product is expected to go live by the end of this year with a property cat XoL reinsurance contract using real contracts and real data on blockchain technology.
For me, the most significant announcement from B3i came in June this year. Having spent the last couple of years looking at all the available blockchain solutions on the market, B3i selected R3’s Corda as the platform for their applications and business network. This makes perfect sense given R3’s specific industry focus on the unique requirements of the financial services sector.
To find out more about the power of the consortium, I turned to Christopher McDaniel, the President of RiskBlock Alliance. For those of you unfamiliar with RiskBlock Alliance, it is a not-for-profit, industry-owned consortium founded by The Institutes. This is a 100+ year education and research organisation with a 40-member board including CEOs of some of the largest insurers.
The RiskBlock Alliance
The RiskBlock Alliance only started a couple of years ago and I asked Christopher how it came about. “There was a lot of talk about the potential of blockchain across the insurance industry. But it wasn’t so clear who to turn to. At The Institutes, our senior exec members increasingly wanted to get under the skin of blockchain and understand what it could really do for their industry.
“So, they created a task force and after 6 months we had built 4 PoCs. This got the insurance firms interested and we created RiskBlock Alliance. It’s a 501-C6 organisation, which means it’s a not for profit, industry owned organisation. We have no plans to go the B3i route and become a commercial organisation.”
The way the RiskBlock Alliance works is that all members have a stake in the organisation. The members, which are the insurance companies, are involved in everything from governance and development through to strategy and direction. The RiskBlock Alliance wants to serve the whole insurance sector and it is already in P&C, moving into Life and Health, and will enter Workers Comp next year. It is also expanding out globally having entered Europe and is now opening offices in Asia.
Governance is key (so is skin in the game)
The consortium model doesn’t always work. Vested and conflicted interests usually get in the way of collaboration and cooperation, however well-intentioned the parties. However, Christopher is extremely confident in the RiskBlock Alliance model. He told me: “Our members have real skin in the game. They have a senior exec on the advisory board and a senior person on the tech board, the strategy board and in each of the working groups. Our members can be as hands on as much or as less as they want to be. It is this level of engagement that is the glue that binds the consortium together.”
I have to say that having spent some time with Christopher and pressing him on this, I did find myself convinced on the strength of the consortium approach they’ve taken. Of course, the proof of the pudding and all that will be tested as they start to achieve scale in a production environment.
Which brings us onto the substance of the RiskBlock Alliance. This is more than an industry talking shop, they’ve actually gone and built something. And it’s called Canopy.
Canopy is a Network
The RiskBlock Alliance have created Canopy as a true ecosystem built by their own software factory. They’ve partnered with R3 to run it on the Corda platform and it is architected to allow others (members and non-members) to build proprietary systems that can plug and play across the Canopy network.
Here’s the sweet thing about Canopy. Think of it like plumbing. Everyone shares the supply of water in a common and consistent way. Whilst also enabling everyone to add their own sinks and taps and appliances to suit themselves.
This is why the Consortium approach at RiskBlock Alliance is likely to succeed. It’s a model that allows rival members to share benefits where no competitive advantage exists (in the plumbing). But it also allows members to keep their data separate and build their own competitive advantage into apps using the common SPKs, tool kits and standards within the Canopy network.
Christopher explained: “Within 5 years, we envision the Canopy network to be just like turning on the tap. Everyone can rely on it, just like they rely on their plumbing.
“But don’t underestimate the work we have to do because this sounds simple but it isn’t. Our industry is large and complex. P&C has very different requirements to Life & Health. Countries and jurisdiction differ too. We have to build all this flexibility into Canopy to be able to cater for a global insurance market.
“Which all means that Canopy will likely become a collection of multiple Canopys that are bridged together, defined by common standards and a single technology architecture. Canopy equalizes everything and enables everyone to talk to everyone else, even if that is across different blockchain solutions.
“And our plan is to develop standard interfaces for common data types such as telematics or IoT. All this goes into the Canopy toolbox that everyone has access too.”
So there you have it. In simple terms, blockchain is the data layer, Canopy is the interface for data exchange, and proprietary apps provide business functionality. All built on a common set of industry wide standards.
ChainGang from The Digital Insurer
In August this year, The Digital Insurer launched its latest initiative on digital innovation for the insurance industry, called The ChainGang. The focus of The ChainGang is the application of blockchain and distributed ledger technology across all lines and segments of the insurance industry.
The launch of ChainGang started with the first of a quarterly series of webinars led by Simon Phipps of The Digital Insurer, supported by Martin Kornacki and myself. The webinar included contributions from Christopher of the RiskBlock Alliance and from Zach Piester, co-founder of Intrepid Ventures.
The webinar also featured 3 blockchain technology firms pitching real world use cases of blockchain in insurance:
To access the presentations and watch the replay of the webinar, go here.
Finally, go here to watch Simon Phipps being interviewed at the CoinTelegragh conference where he spoke about blockchain and its impact on insurance and here to view an earlier interview with Vitalik of Ethereum fame.
Some Relevant Blockchain Articles
The author Rick Huckstep is Chairman of The Digital Insurer and a keynote speaker, strategic advisor and investor in technology startups