Insurers hope blockchain will fill their sails

When Maersk’s container ships embark on their voyages around the world over the next few months, their hulls will be tracked and insured via a blockchain-based system. Blockchain will also be used to help decide how the ships will be insured if they sail through war zones.

The shipping company has teamed up with the consultancy EY, insurers XL Catlin and MS Amlin and the broker Willis Towers Watson to create a system which, they hope, will lead to more efficient insurance policies that are more tailored to what Maersk needs.

The system has come a long way since it was first tested last year. “What we have created is completely different from the proof of concept last March,” says Shaun Crawford, global insurance leader at EY. “We are not digitising processes. We are creating new business models.”

The Maersk system is just one of dozens of blockchain initiatives in the insurance industry. The big incumbents, including Axa, Allianz and AIG, are working out how best to use it, as are a series of start-ups. They range from Blocksure and ChainThat, which are developing blockchain-based systems for insurers, to Buzzvault, which uses blockchain to store details of the possessions that its customers want to insure.

Hopes for the technology are high. “Blockchain is a game changer,” says Gerhard Lohmann, chairman of B3i, a start-up formed by a group of 13 insurers.

“Companies are now actively incorporating it into their capital allocation plans,” says Gerald Glombicki, a director at the rating agency Fitch Ratings. “A lot of time is being put into thinking about how it can transform the industry.”

One of the big benefits of distributed-ledger technology is cutting costs. “The orchestration and automation that blockchain provides is a big efficiency,” says Craig Polley, founder of LimeStreet Digital Partners, a consultancy.

That efficiency could take several forms. First, there is the convenience of all parties to an insurance contract — from the insurer to the broker and the policyholder — being able to see all of the documents in the same place, with changes being verified by all parties. That can save a lot of the time-consuming data re-entry that goes on across the insurance industry, and cut down on the risk of mistakes or misunderstandings in a contract.

Blockchain can also make the claims process more efficient. This is especially relevant in cases where claims are straightforward. According to Mr Polley, “blockchain is most useful where there is no claims adjusting”.

Fizzy travel insurance, offered by Axa, is an example of this in action. If a policyholder’s flight is delayed, the information is relayed automatically to the blockchain, which triggers a payout to the customer for the delay, taking out several stages in the traditional claims process.

The potential for savings is big. B3i estimates that some insurers could cut 30 per cent off their costs by using blockchain.

Consultants at BCG say that the property and casualty insurance industry as a whole could generate an extra $200bn of profits by using the technology.

Despite all those potential benefits, and the many experiments under way, blockchain has yet to make a serious impact in the insurance world.

It is past the trial stage, but not at scale yet

“It is not being used at scale,” says Mr Glombicki. “It is past the trial stage, but not at scale yet.”

Insurance companies are generally cautious when it comes to innovation. “The industry is in general seven to 10 years behind banking in adopting any sort of technology,” says Max Hauser, a partner at BCG.

That reluctance could be even more stark for blockchain, which may require the insurers to put some of their data — one of their main assets — into a system that they do not entirely control.

Added to that is the challenge of getting a consensus on which system to use. Blockchain in insurance will work well, say experts, only when everyone involved in a contract is signed up to the same infrastructure.

“As long as the insurers are playing on their own with it, you won’t have a breakthrough as you are just replacing one technology with another,” says Mr Hauser. “The whole disruptive potential will only kick in once you go past the realm of your own company.”

B3i is an attempt to solve that problem. Founded 18 months ago, it started life as an internal project at Swiss Re but rapidly expanded to become a consortium involving some of the biggest names in the insurance world, including Allianz, Zurich, Generali, AIG, Chubb and AIA.

This year B3i has become a company in its own right, and is raising money to develop blockchain-based products for insurance. The first is a system for use in property catastrophe reinsurance, which should be ready in time for the January contract renewal season in 2019.

“The catastrophe . . . market isn’t going to be the biggest, but it is a good place to start as it is simple, short-dated and easy to implement,” says Mr Lohmann.

“We are using [it] as a test to prove the technology but we see much wider uses,” he adds. “In the next three to five years you are going to see quite significant developments.”

Those developments, however, require insurers to sign up to the technology, and be prepared to put money into it.

“It is a question of whether, rather than a question of when,” says Mr Hauser. “It’s not that we are not optimistic on the technology, but if you don’t get an industry consensus then the application of this technology might not be ground breaking.”

Greg Brown, at the specialist insurance consultancy Oxbow Partners, is more sceptical. “While we have no doubt that it is an interesting technology, we do question to what extent it solves the insurance industry’s problems,” he wrote in a blog post. “Insurers should continue to focus on their challenges . . . rather than necessarily finding problems for blockchain to solve.”