Technology
Shows Promise

• Meg Green
• October 2018
• 

Industry participants and regulators have seen the benefits of blockchain technology, and are taking early steps to wider adoption, said Rocco Mancini, consultant, captive solutions, Marsh, and Havell Rodrigues, chief executive officer, Adjoint, a provider of enterprise blockchain solutions.

Blockchain is a decentralized distributed ledger of transactions that can be shared by all participants rather than being controlled or owned by any one. Mancini and Rodrigues spoke with A.M.BestTV at the conference of the Vermont Captive Insurance Association in Burlington, Vermont.

How might blockchain impact the insurance industry?

Mancini: In the short term, what you're going to start to see are lots of opportunities for operational efficiencies. It could be as simple as finding more efficient ways to handle claims payments. You could look at multinational business units, where there's multiple regulations and you struggle to share data and information freely.

You could think about anyone in the insurance industry who's ever been in a position where you've sent out multiple emails for the same issue over and over again, for a document that you're all just trying to work on and update together.

There's a lot of that in the insurance industry. It's amazing how inefficient it could be, and how much time we all waste just handling that process. Blockchain creates that opportunity to share the information, make sure that it's immutable.

You know everyone has the same information, and everyone's agreeing on how things should be. Those disputes, and that need for trust, does create a lot of inefficiencies in the insurance industry. The insurance industry itself is based on trust, trust on contracts.

Rodrigues: I think increasing margins is going to be one of the big benefits for the industry. It's a very competitive industry. If you can take off some manual processes that you're doing today and replace it with blockchain technology and smart contracts that can automate workflows, I think you're going to see 20%- to 50%-type margin benefits for the industry.

That's one area. The other area is around value chain disruption. It's about how blockchain enables trust for the participants in the industry. Now, if blockchain can provide that trust layer, a lot of intermediaries that were previously providing that service may no longer be required. That's another area to keep an eye on.

What challenges do captives face when it comes to using blockchain?

Mancini: The challenges we find are going to be mostly with the captive owners. It's interesting in that, sitting at the Vermont Captive Insurance Association's 2018 conference today, there's been discussions of blockchain.

It's been a topic that's brought up multiple times. The regulatory environment in Vermont is clearly becoming very favorable for these companies. At the same time, on the industry level, and then on the large corporation level, we see large consortiums showing interest in blockchain.

Where I find a lot of these barriers to entry are going to be the questions the individual captive owners have. For them, it's a question of what is my first exposure to blockchain going to be? How is it going to impact me if my company utilizes blockchain?

In fact, I think it's a lot simpler than your average captive owner realizes. Their initial exposure to blockchain may not even be something they experience on the front end. It may be working with service providers on the back end.

It might be a nice little efficiency that they've noticed that's made their lives easier, and saved costs for them just internally. Ultimately, I think the real challenges lies in the uncertainty.

It almost seems unprecedented, the way the regulators, industry experts, and corporations are coming together in an industry that typically moves very slowly to push for innovation in this area.

Rodrigues: I agree with that. In general, there are just so many inefficiencies in the captive insurance industry. Movement of premium payments, tracking the payment made by a local subsidiary that's part of a captive and making sure that payment is going to the right spot at the right time.

Movement of information between the various stakeholders in the ecosystem is another challenge that they face today. They'll have to spend a lot of time doing this regulatory reporting, which is an important thing they need to do.

I think if we can address those challenges, and create streamlined processes where data and information about money is moving very smoothly, I think the captive insurance is going to probably grow from where it is today to target a much bigger market.

Is blockchain currently being used, then, already by captives?

Mancini: Yes, and there have been pilots that have been put underway just to realize those initial operational efficiencies. That's a short term opportunity for blockchain that we're realizing today.

There's a lot of potential untapped opportunity beyond just operational efficiencies, opportunities with smart contracts, and what that can do.

Rodrigues: We're currently working with a captive manager today to streamline and automate the workflow process around renewal of a captive. The eventual goal is to help them create new captives on a blockchain as well.

That's going into production. This is not a proof of concept-type experiment. It's really fully integrating this into the existing legacy infrastructure as well.

We are working with a company in Switzerland, which has created a platform where shipowners can get insurance directly from the underwriters without the need of a broker in the middle.

It's challenging the notion of what value do brokers play in the middle. Obviously, they do play an important role, but this is changing the way the world operates. It's pretty interesting.