KEY VALUE DRIVERS OF DISTRIBUTED LEDGER TECHNOLOGY (DLT)/ BLOCKCHAIN
1. Operational simplification: DLT reduces manual efforts required to perform reconciliation and resolve disputes. The current practice of managing policy and claims data in separate ledgers can lead to inconsistent master and transaction data, resulting in erroneous, duplicated information, as well as a significant loss of time reconciling and correcting this data.
3. Counterparty risk reduction: DLT challenges the need to trust counterparties to fulfil obligations as agreements are codified and executed in a shared, immutable environment.
4. Clearing and settlement time reduction: DLT disintermediates third parties that support transaction verification/validation and so accelerates settlement.
5. Liquidity and capital improvement: DLT reduces locked-in capital and provides transparency into sourcing liquidity for assets.
6. Fraud minimisation: DLT enables asset provenance and full transaction history to be established within a single source of truth.
LONG TERM BENEFITS
1. Lead to a reduction in costs, errors and time;
2. Provide instant access and legal certainty;
3. Minimise reputational risks; and
4. Create an environment where there is no single point of failure.
BLOCKCHAIN DISRUPTING THE FINANCIAL SECTOR
1. Potential for ultra-low transaction costs introduced globally.
2. The ability to insure assets or risks that are not currently insurable.
3. More efficient interactions between all the players leading to fewer errors and less legal uncertainty.
BLOCKCHAIN FOR FLIGHT INSURANCE PRODUCT
1. French insurance giant AXA has launched a new flight delay insurance product that uses the public ethereum blockchain to store and process payouts.
2. A "smart insurance" tool that flyers can use to insure their trips if their flight is delayed by two hours or more.
3. Public blockchain plays two key roles. It maintains an accessible record of the insurance contract itself within a smart contract, and serves as a mechanism for triggering the payment to the client once the two-hour mark is passed.
4. By removing insurance exclusions and using an Ethereum smart contract to trigger indemnifications, the blockchain in a way builds more transparency into the insurance process.
DLT FOR FINANCIAL SERVICES
1. In 2016 Aegon, Allianz, Munich Re, Swiss Re and Zurich launched the blockchain insurance sector initiative B3i.
2. The consortium R3 is now working with over 80 banks, financial institutions, regulators, trade associations, professional services firms and technology companies to develop Corda, a distributed ledger platform designed specifically for financial services.
3. Lloyd’s insurance market in London has included DLT as part of their target operating model or TOM initiative, while AXA Strategic Ventures (along with other partners) invested around $55 million into a blockchain startup IN 2016.
4. Allianz has announced its successful pilot of a smart contract solution to automate catastrophe swap transactions.
5. In 2017 AIG announced it had sold the first blockchain-based multinational insurance policy to Standard Chartered. The policy for Standard Chartered consists of a “master policy” in the UK, which is linked to local policies in the US, Kenya and Singapore.
THOUGHTS
1. There is a particular opportunity in the ‘gig economy’, where workers often cannot afford a set monthly premium, but may have a greater need for cover due to a lack of financial security.
2. Data flows could include the amount of jobs completed, miles driven or income earned from different gigs, creating a complete picture of income, while also providing a better view of expenditure and debt levels.
3. With early positive signs from the way this technology has been utilised in other parts of the insurance industry, blockchain could provide a catalyst for the protection market to transform itself
Source: Coindesk, lexology, the actuary
