The potential for blockchain to deliver substantial value to financial services is enormous. Not only does blockchain offer the promise of cost reduction and efficiency, but it could also enable revenue growth, as insurers attract new business through higher-quality service. Blockchain technologies can help the wholesale insurance sector fulfil its role in underpinning the global economy more effectively. Just as blockchain is being pursued as a force for positive change in other areas of society – from identification for refugees to better public service delivery – it can also help wholesale insurance to discharge its responsibilities for the common good.
Blockchain and insurance: identity, time, space, and mutuality
Chain of a Lifetime concluded that four themes applied to blockchain applications in retail insurance; Identity, Space, Time, and Mutuality. These four themes also resonate in wholesale insurance.
- Identity – Blockchain offers the possibility of a portable, secure, globally available store of personal or legal entity data. This could greatly simplify KYC/AML processes, reducing delays and costs. Improved certainty on identity could also reduce the risk of fraud.
- Space – Blockchain allows resilient interaction between dispersed participants. In the context of wholesale insurance, this could widen the network of insurers involved in a transaction, allowing faster adjustment across markets. Combined with other emerging digital technologies it could also allow more precise, on-demand products, such as insuring a cargo container on a single leg of its journey.
- Time – By providing an immutable permanent record, blockchain can enable new capacities within insurance. For example, an insured client could maintain a real-time blockchain register of warehouse movements to prove the amount insurable at all times, thus allowing a new type of insurance covering actual risk rather than a maximum risk. Separately, by providing a ‘super audit trail’ a blockchain can improve legal certainty where parties dispute the timing of events.
- Mutuality – This is an area in which the power of blockchain manifests itself in several guises in wholesale insurance. Use of the technology enables entities to interact without a central processor, reducing the need for ‘natural monopolies’ which tend to extract excessive rents. Much of the processing cost base of wholesale insurance arises from simply keeping track of ancillary contract documentation, and making sure that records are consistent between client, broker, underwriters, reinsurers, and claims managers. Blockchain provides a natural technology for controlling large complicated files which change over time, to create ‘one version of the truth’ timestamped and tamperproof and available to all, allowing processes which reduce errors, delays, costs, and legal uncertainty.