Blockchain insurance consortium B3i has revealed new details about its blockchain smart contract prototype, revealing a plan to remove insurance brokers from the equation.
Internally described as “Codex 1,” the prototype is designed to automate many of the processes involved in trading insurance-linked securities currently fulfilled by brokers. The prototype does this by giving the insurance companies seeking reinsurance, and the reinsurance companies that serve them, access to the same, cryptographically secure distributed ledger.
As enterprises of all kinds start experimenting with blockchain, looking to eliminate middlemen along the way, insurance brokers could become the latest group to face disruption with the arrival of the new technology.
In conversation with CoinDesk, Paul Meeusen, the director of global business solutions at reinsurance company Swiss Re, said he sees substantial impact if blockchain were to be adopted on a large scale.
Meeusen, who is also a founding member of B3i, said:
“The administrative involvement where part of what [brokers] do is collecting the papers from the different parties, then ordering them and passing them onto the next, that is of course becoming unnecessary.”
Work on Codex 1 began earlier this year as members – including Aegon, Allianz, Munich Re, Swiss Re, Liberty Mutual and Sompo Japan Nipponkoa – evaluated several potential use cases for blockchain. The group finally decided to convert the widely used Property Cat XL (“Cat” being short for “catastrophe”) reinsurance contract life cycle to a self-executing smart contract.
And, according to Meeusen, that’s because its similarities across nations makes it potentially widely adoptable.
“If you look at catastrophic risk, when the wind blows or the earth shakes, in simple terms, I would say the nature of that is very uniform across the globe,” he said.
Passing on the savings
Since the early days of the consortium, Meeusen has advocated that blockchain technology could enable reinsurance companies to compete over better products, instead of just better platforms.
For example, in a typical Property Cat XL contract, a broker would receive quotes from multiple reinsurers and help organize which combination of risk assessment and pricing is most advantageous. They would then facilitate communication between each of the counterparties while keeping private the terms of the eventual deal.
With Codex 1, though, much of the broker’s role is moved to a permissioned blockchain that automates both premium settlement and claim settlement, all while still ensuring the counterparties remain unaware of one another’s terms.
The end result, Meeusen hopes, is that companies can focus their attention on creating more accurate risk assessments and better rates.
“We would expect that – just like reinsurers – when they become more efficient, over time they can offer more attractive prices,” he said.
Further, as the role of brokers decreases as a result of blockchain, Meeusen expects they will be able to offer more attractive brokerage fees “because their service is going to become much more efficient.”
Broadening the use cases
While this first prototype is focused on property catastrophes, according to Meeusen, the group is ready to begin work on multiple other projects currently “on the shelf.”
The next step will be to widen the scope of the offering to include casualty lines (such as motor vehicle accidents and worker’s compensation), which Meeusen said will require little more than a “copy-paste” of the current smart contract.
B3i also aims to expand its blockchain work to include so-called “proportional contracts” that rely on pro-rated terms, as well as improving the actual creation of insurance-linked securities and bonds.
If successful, the prototype – scheduled for its first live demo at the Monte Carlo RVS conference in September – could eventually result in tokenized bonds, making trading risk as easy as trading cryptocurrencies such as bitcoin and ethereum.
“That’s the master plan. But we first need to walk before we run.”
Man on world image via Shutterstock
The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at [email protected].
Powered by WPeMatico