Nephila Capital and Allianz have announced a successful pilot scheme for using blockchain technology for transacting a swap transaction for natural catastrophe risk.
Allianz said blockchain smart contract technology behind the bitcoin online currency could be used to ease and accelerate the triggering process of catastrophe bonds and swap transactions.
The Bermudian deal partners Allianz with alternative re/insurance player Nephila, the world’s largest manager of insurance linked investments.
The Nephila and Allianz Risk Transfer (ART) pilot is one of several test applications by Allianz’s disruptive technologies division exploring future blockchain opportunities, Allianz said.
Allianz said the test run “demonstrates that transactional processing and settlement between insurers and investors could be significantly accelerated and simplified by blockchain-based contracts”
The insurer said the test transaction points towards increased tradability of cat bonds and wider opportunities to apply the new technology across other insurance transactions.
Blockchain's uses as crypto-currency for smart contracts and distributed ledgers are being explored throughout financial services, Allianz said.
Using blockchain technology for the swap, each validated contract on an open shared infrastructure contains data and self-executable codes specific to that contract.
When a triggering event happens, the blockchain smart contract is designed to pick up predefined data sources of all participants, and automatically activates and determines payouts between contract parties.
“Blockchain technology would increase reliability, auditability and speed for both cat swaps and bonds as less manual processing, authentication and verification through intermediaries is required to confirm the legitimacy of payments/transactions to and from the investors,” said Richard Boyd, Bermuda-based chief underwriter for ART.
Laura Taylor, managing principal at Nephila, said: “We believe technology will drive the future of insurance. We have invested a great deal accordingly and are pleased to extend our long-standing strategic partnership with ART to use of the Blockchain.”
Boyd added: “By replacing the human interventions which are currently embedded throughout the entire risk transfer process, frictional delays and the risks of human error are completely removed – with a radical effect on the speed and efficiency of the process and, in the case of bonds, on the tradability of such securities.”