The wholesale global insurance market is showing some interest in implementing blockchain solutions, but too many companies are still figuring out what the new technology means, research from Long Finance, commissioned by PwC and conducted by Z/Yen, has shown.
The research identified claims processes, compliance and placement processes as three areas where mutually distributed ledger technologies, commonly known as blockchain, could create major opportunities for the re/insurance industry.
As well as cost reductions and improved efficiency, blockchain could transform the way the sector operates, enabling higher quality service, PwC suggested.
While insurers have historically lagged behind bankers in introducing many new technologies, blockchain already has some insurance proponents and first movers, the report noted.
"Allianz has recently publicised a catastrophe bond prototype and Blem Information Management has introduced a blockchain application within an existing industry product," said PwC.
"Furthermore, the London Market Target Operating Model (TOM) project is also looking at the use of blockchain for different applications, and plans to publish its initial programme shortly," added the paper.
Using a banking example, consistent use of blockchain in so-called “know your customer” and anti-money laundering checks could save $2.5bn of the estimated $10bn global processing costs in that sector, the study estimated.
As blockchain reduces errors and improves accuracy, relationships between customers, insurance business partners and regulators should improve, the paper argued.
“Wholesale insurers have recognised the benefits of blockchain technology and have identified where they’d like to see solutions implemented. The challenge now is to build on this solid beginning," said Jonathan Howe, UK insurance leader at PwC.
“It will be a case of trial and error. Firms need to be realistic – any proposed changes have to be viewed in the context of how they will impact the market as a whole – the industry is data heavy and the actions of brokers, insurers and reinsurers are all interlinked.
“We must remember that blockchain will not be the best solution for all insurance processes –we must look past the hype. The key is identifying where it will provide value. For some processes it will be game changing. Blockchain has huge promise to be a force for good – it is an enabler for the wholesale insurance sector to continue its role in underpinning the global economy,” he said.
Facilitating insurance contracts’ placement and management could see great improvements with the use of blockchain, according the report.
This includes all relevant documentation, starting with the clients’ insurance application, broker placing the risk, insurers accepting risk, then managing all changes and transactions throughout the life of the contract.
Using a blockchain to store and share documents between brokers, underwriters, the insured and re/insurers would reduce errors, processing time and cost by removing duplicate entry of data and reconciliation, ensure consistency and provide instant access to information, PwC argued.
The report also proposes that the technology could have a significant impact on claims processes. A blockchain approach incorporating all documents created in a claims process could allow everyone involved to instantly access the right, accurate information, to monitor and review the process.
That, the report suggested, is expected to allow the client, brokers and insurers to handle a claim far more quickly, provide extra information than is currently possible, and take faster decisions for faster resolutions.
Mooted benefits include reduced delays and costs, greater legal certainty and improved customer service, the research argued.
Regulatory compliance is another area identified by the research as harbouring potentially big benefits for the re/insurance sector using blockchain technology.
The research found the technology could reduce the burden on customers and businesses around proof of identify know your customer initiatives, as well as for anti-money laundering and sanctions regime processes.
A blockchain used to record customers’ proof of identify documents and evidence of validation would involve a single point of checking, cutting the time currently wasted on multiple checks for a single transaction, said the report.
Typically, all brokers and insurers involved in an insurance contract that does not use blockchain have to independently run all of these checks, creating duplication and delays in the placement process.
Removing such duplication would cut the processing cost and speed up insurance contract placement. The report argued that it would also leave less room for errors and inconsistencies, making insuring time-critical transactions more of a possibility.
The report suggests that collaboration, trial and experimentation will be necesary for wholesale insurance pioneers looking to successfully implement blockchain technology.
Firms collaborating to implement blockchain technology could benefit as their interactions become more efficient.
The study included a technical “proof of concept” developed by PwC to show how blockchain technology can be used to solve business problems in wholesale insurance.
“With a new technology that is attracting as much attention as blockchain it is important to be able to demonstrate to people how the technology works. The proof of concept we have built picks up on many of the themes in the report," said Steve Webb, financial services blockchain leader at PwC.
“We are able to demonstrate a functioning policy placement demonstration illustrating how data can be distributed between multiple different participants, how the transaction history creates certainty of what offers are made and accepted and how resilience is enhanced as there is no single point of failure," Webb added.
For more on blockchain, you really ought to be a Reactions subscriber, as it was the subject of an in-depth feature in the July/August issue of the magazine, and published online here.