The insurance market on blockchain – ChainThat 21st century coffee house
The world of speciality and commercial (re)insurance is a curious and complex one. Most of the world’s business comes through London in some form or another. Steeped in over 300 years of tradition, heritage and unique expertise, the London insurance market still has at least one foot in the technology dark ages.
So, imagine the irony, that this cornerstone of the global insurance market might one day place its business on a blockchain. This week, Rick Huckstep speaks exclusively with Dave Edwards, co-founder of blockchain development house, ChainThat.
Blockchain is here to stay
According to former US Treasury Secretary, Larry Summers, it is “overwhelmingly likely” that the financial industry will adopt uses for “the technology that underpins Bitcoin”.
Last September, the World Economic Forum published a report on technology tipping points. It said that by 2025, “10% of global gross domestic product will be stored on blockchain technology.”
And this year, the UK Government issued this must-read white paper and a matching YouTube video. The report concludes, “Distributed ledgers undoubtedly hold value for government, offering news ways of operating that reduce fraud, error and the costs of delivering services to under-served users.”
Less than a decade ago, people were making statements like these about cloud computing. Now we all take it for granted and no one explains how “cloud” works anymore.
A decade earlier, it was the Internet and predictions for a brave new world.
Now, it is the era of blockchain.
So, what does this mean for Insurance? And specifically, the world of commercial and speciality (re)insurance, whose roots go back to 1688 and a coffee house in the City of London.
Fixing an Old World Problem with a New World Solution
The London insurance market is special and unique. Modernising the way it works in a post-Internet, digital world has proven to be a challenge for this peer-to-peer subscription marketplace.
This challenge is succinctly captured in the speech given by Inga Beale last summer at the FT’s “Future of Insurance” conference.
The Lloyd’s of London CEO laid out the challenges for London in the way that it transacts business today:
- “Placing a risk in the London market still requires a plethora of paper”
- “Back office systems are unable to communicate with each other”
- “There is multiple entry of exactly the same data into numerous operating systems”
- “Syndicates are unable to mine their own data.”
These do not seem to be insurmountable problems, especially for a market that made £3.2bn profit in 2014. (Go here to find out more about how the London market is approaching it’s modernisation agenda and TOM).
Can blockchain be the answer?
Insofar as a technology is capable of delivering fundamental change, then yes, it can.
To explain how, I talked with Dave Edwards, co-founder of ChainThat. (This, where I declare a personal interest as I am an advisory board member for ChainThat).
The three founders have used their background in the insurance market to build a prototype insurance placing platform on a blockchain.
Dave told me; “Before starting ChainThat we went to some of the early conferences and meet-ups about blockchain. We saw a lot of slide ware. There was lots of talking about the art of the possible, but no one seemed to want to demonstrate working applications.”
“We decided that instead of talking about the theory, we would prove the technology, understand its limitations and be able to demonstrate it to our customers.”
So they built a working demo!
Rather than me explain the way it works, watch this video to see for yourself.
ChainThat combine industry expertise with technical know-how
The three founders have all worked in the commercial and specialty insurance markets and seen for themselves the challenges in the marketplace. Just as Inga Beale spelled out.
“We saw how Blockchain and smart contracts would simplify an insurance market. By using easily repeatable processes they would simplify the process of moving each piece of business around the market. And without the need to be centrally controlled.”
Which is what blockchain is all about -removing intermediaries from the value chain.
“We could have started anywhere in the lifecycle of an insurance risk,” Dave told me, “but, we decided to start at the beginning. By comprehensively capturing all data when a risk is placed in the market, we are able to use it further down the line for the settlements and claims process.”
ChainThat follow ACORD data standards and have created a solution that will integrate with existing broker and carrier systems. There’s no need to rip and replace the investment in existing systems.
What they have created is a marketplace platform where commercial and specialty risks can be placed in a peer-to-peer network on blockchain.
Which is how it started when risks were placed 300 years ago in Edward Lloyd’s coffee house. Today, the coffee house is replaced by the Lloyd’s Building on Lime Street, but it still operates as subscription marketplace where brokers go from carrier to carrier to underwrite risk.
ChainThat have taken an analogue process and made it digital.
The prototype is built on Ethereum and complemented with other distributed technologies, to generate a framework for a secure and enterprise class platform.
Dave explained.“As the general public would not need access to a commercial insurance marketplace we’ve built this as a private blockchain. It’s worth noting we did look at other platforms to use for our prototype but found Ethereum was by far the most flexible and feature rich to build upon. It also has a great community, so when we did hit bugs, the key Ethereum project was quick to suggest workarounds or provide fixes.“
Does ChainThat address the challenges of the market?
Potentially, yes. Of course, these are early days with ChainThat’s MVP.
Which is why they have spent a year to build the prototype, so that we can see the way blockchain works for ourselves.
By taking this approach, they are able to show and not just tell the capabilities of ChainThat.
As a digital platform, ChainThat can certainly eliminate the need to carry huge paper files around the market. And as a workflow platform, independent of any central controlling agent, ChainThat could be trusted by all parties with complete transparency and provenance of all actions.
The removal of process duplication is a differentiating feature of blockchain. Because all records are immutable (which means that data on the blockchain can be relied upon) all parties in the transaction can trust previously completed transactions.
And by digitising the manual, paper based processes in the insurance market today, countless opportunities open up for the syndicates to access their data.
Dave explained; “We’ve used Smart Contracts to enforce workflow standards, call other contracts to check states, provide validation and at the same time keep a complete historical list of transactions up to the point where a contract was digitally signed. “
My word is my bond
Trust is a fundamental underpinning characteristic of the global insurance market. Lloyd’s of London prides itself on its unbroken promise to pay valid claims. This is a question of integrity as well as identity for the London insurance market built upon the uniqueness of having both carriers and brokers clustered together.
But in the digital economy, can there be a place for this sentiment?
With blockchain, yes, there is. The question of ‘trust’ is removed from the equation for all parties in a way that cannot be achieved through a conventional, centralised system.
Dave explained: “allowing members of a subscription marketplace to own and control their data, knowing that agreed business rules are enforced as agreed as opposed to how someone might (mis)interpret them allows for a future where marketplaces actually fit the business models of insurers instead of insurers trying to fit in around centralised technology.
“We are currently working on other business scenarios where we see the opportunity for commercial insurance market places to start to leapfrog their legacy technology positions and open up new efficient ways of using their data and interacting with other parties.”
Recreating the (digital) insurance coffee shop
These are early days for the blockchain and all start-ups in this space.
ChainThat’s demo version of an insurance placing platform promises to provide a common platform for the insurance marketplace to operate freely and within standards.
It is a digital equivalent of Edwards Lloyd’s coffee shop, but with the transparency and governance demanded of a digital marketplace in the 21st Century.
The author, Rick Huckstep, is an InsurTech thought leader and editor of InsurTech Weekly for The Digital Insurer.