Five insurance giants, Aegon, Allianz, Munich Re, Swiss Re and Zurich, which in combination manage trillions of dollars in assets, have launched a blockchain initiative B3i to study the feasibility of the use of blockchain technology for insurance and to launch a blockchain based insurance proof of concept.
“We are thrilled that Allianz is investigating emerging technologies such as Blockchain together with other key insurance industry players”, said Christof Mascher, Chief Operating Officer of Allianz Group. “This initiative, enabling alternative operating models based on the Blockchain technology, can help us increase transparency and efficiency and deliver a better experience to our customer.”
The use of blockchain for insurance has the potential to automate numerous claim processes, saving considerable costs and potentially fully disrupting the insurance industry as smart contracts may replace manual tasks with self-executing code.
A live example is FlightDelay, a blockchain based self-running, self-executing smart contract requiring no employees. Users simply input a premium on a blockchain based website and receive a payout based on zero sum algorithmic calculations with the outcome determined by Oraclize data feeds.
A more complex example is a potential project by Makoto Inoue, a web developer at SimplyBusiness, UK’s biggest business insurance provider, and an Ethereum enthusiast. He was part of a team that won a Thomson Reuter’s prize for BountyMax, a smart contract based bug bounty which he aims to take further. Inoue states:
“At our Proof of Concept, each contract owner put reward for their own contract violation. The amount will be small unless you have big pocket.
We can group the contracts together and have compound bounty so that a researcher who breaks one of contracts can get payout of the entire bounties combined.
Once we get enough data about the probability of contract violations, insurers can (potentially) underwrite policies so that we can have higher bounties than total rewards (aka premium) combined… smart contract insures the risk of smart contracts themselves so we can verify the insured interest (because they are all on blockchain).”
As the technology is very much at an early stage, the preferred initial approach seems to be consortiums or alliances. Harald Rosenberger, Head of Innovation at Munich Re states:
“Blockchain technology shows most of its potential only if it’s applied in a network of peers. Therefore we see a huge benefit for the insurance industry in doing this together in the Blockchain Insurance Industry Initiative B3i. With B3i we are in the position to explore and shape the future use of Blockchain and to set the necessary standards for a true digitalization of insurance.”
However, Inoue states that, seemingly, most financial companies see blockchain technology as just a way to share data across institutions within a private chain, but insurance use cases can be more diverse if the idea of automatic payment between end users and insurers is incorporated as well as, perhaps, exploring the use of public blockchains for insurance with smart contracts.
It remains to be seen, therefore, whether disruption will come from incumbents updating their technology or start-ups seeing innovative ways blockchain technology can be implemented as the insurance industry is still at an early exploratory stage with the main approach seemingly the establishment of co-operative consortiums with additional individual initiatives from some companies to gain a competitive edge.
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