Insurance industry incumbents form Blockchain initiative

Five of the world’s largest insurance companies recently announced the Blockchain Insurance Industry Initiative (B3i). Aegon, Allianz, Munich Re, Swiss Re and Zurich aim to explore whether Blockchain technology can be used to develop standards and processes for industry-wide usage, and to catalyze efficiency gains in the insurance industry.

“If Blockchain technology proves viable,” the announcement states. “It could well streamline paper work and reconciliations for (re-) insurance contracts and accelerate information and money flows, while greatly improving auditability.”

B3i will also serve as a platform to exchange insights regarding technologies, use case experiments, and research information. “This initiative aims to facilitate the transition from individual company use cases to viable solutions across the entire insurance value chain,” states Munich RE.

The industry titans have also agreed to a pilot project for inter-group retrocessions, where participants insure each other. The practice diversifies portfolio risk and helps limit catastrophic losses.

“Blockchain technology shows most of its potential only if it’s applied in a network of peers. Therefore we see a huge benefit for the insurance industry in doing this together.”
— – Harald Rosenberger, Munich Re Head of Innovation

According to Swiss Re, global direct life premiums were over US$2.5 trillion in 2015 while global non-life insurance sector’s premiums were approximately US$2 trillion. “Despite the challenging environment, real global direct life and non-life insurance premiums written grew by 3.8% in 2015,” the report revealed.

Insurance Europe, the European insurance and reinsurance federation, reports that Europe has a 32% share of the global insurance market, making the European insurance industry the largest in the world, followed by North America (31%) and Asia (30%). In addition, European life premiums accounted for 34 percent of 2014 global life premiums and 30 percent for non-life respectively.

Despite its size, the European insurance market is facing multiple challenges. While North American premiums have recently reversed two years of decline, Swiss RE states that premiums contracted in Central and Eastern Europe. Growth slowed significantly in Western Europe.

The 2016 European insurance outlook report by Ernst & Young states, “Macroeconomic pressures on insurers have not relented.” As the European Central Bank (ECB) continues its expansionary and unconventional monetary policies, continuing low interest rates bring in a number of challenges.

While the new Solvency II regulation and the Insurance Distribution Directive (IDD) have added pressure to the industry, the digital landscape is also evolving, and with that change comes new digital operators. Ernst & Young contends that new players yet to disrupt existing European insurers.

“The need to respond adequately to consumer demand in an increasingly digitized marketplace will be paramount, presenting a unique opportunity for the market to demonstrate it has the appetite and capability to seize the digital opportunity.”
— – Ernst & Young

While B3i shows clear intent on behalf of the founding members, the general view of the insurance industry, unlike banking, is one of “wait and see,” according to Deloitte. However, as with banks, insurers could use blockchains to streamline operations and payments.

McKinsey & Company suggested that insurers could use Blockchain technology to address some of their challenges in July,  “Now is the best time for the insurance sector as a whole and for individual insurance players to further investigate the blockchain technology and its potential.”

McKinsey & Company is not alone in urging the insurance industry to take action. PricewaterhouseCoopers (PwC) challenged the insurance industry to start adopting blockchain technology in September. The challenge followed a PwC report stating that blockchain could save reinsurers between US$5-$10 billion.

Earlier this month, PwC Insurance Leader Stephen O’Hearn suggested that blockchain is the , “Killer app,” for insurance, “Yet there is still a lot of uncertainty about how to capitalise on the opportunities.”

“Our research reveals that insurers have less understanding of how blockchain works and what it has to offer than other financial services sectors – almost a third of the insurance executives taking part in a recent study said they’re not familiar with the technology at all.”
— – Stephen O’Hearn, PwC Insurance Leader

The founding members of B3i are clearly bucking the trend, and finances to both protect and leverage. Munich Re Group or Munich Reinsurance Company is is one of the world’s leading reinsurers, having written €24.4b in gross premiums in the first six months of this year. The company has a dedicated unit, “That works on a prototype and monitors blockchain platforms and startups, looking for possible use cases of the technology,” a spokesperson told BNC.

The company identified blockchain in 2016 IT Trend Report for the insurance industry. The reinsurer listed three benefits; A blockchain ledger can help verify data between primary insurance and reinsurance, speed up transaction processing with less bureaucracy from identity validation, and enable new insurance models such as peer-to-peer insurance and smart policies.

Aegon is one of the world’s leading providers of life insurance, pensions and asset management. "We are delighted to participate in this important initiative", said Mark Bloom, Chief Technology Officer and Management Board member of Aegon.

"We anticipate substantial benefits from Blockchain-based solutions being implemented in the heart of our business."
— – Mark Bloom, Aegon Chief Technology Officer

Aegon has over 29,000 employees and approximately 30 million customers. As of June 31, it managed around €717 billion of assets. The company started leveraging innovation through a dedicated investment fund last year. The corporate venture fund, Transamerica Ventures, has a budget of €100 million, and has already invested in the Digital Currency Group (DCG).

Allianz has also been investigating blockchain technology. Allianz Risk Transfer and Nephila Capital Limited successfully piloted blockchain smart contracts for natural catastrophe swaps and bonds last June.

The insurance giant has 85 million retail and corporate clients in more than 70 countries, and 142,000 employees worldwide.  “We are thrilled that Allianz is investigating emerging technologies such as Blockchain together with other key insurance industry players,” said Christof Mascher, Chief Operating Officer of Allianz Group.

“This initiative, enabling alternative operating models based on the Blockchain technology, can help us increase transparency and efficiency and deliver a better experience to our customer.”
— – Christof Mascher, Allianz Group Chief Operating Officer

Swiss Re is a leading wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer. Jason Richards, Swiss Re’s Head Property and Casualty (P&C) Business Management said, "Technology is already disrupting the wider financial services world and is now starting to make its mark on insurance.”

The group recently published an emerging risk insights report asserting that blockchain will take more than three years to impact the industry. “The blockchain could revolutionise industries where heavy documentation is needed,” Swiss Re wrote. “It could foster an entire machine-powered ecosystem of commerce.”

Swiss Re is also organising a blockchain event for insurers in January 2017. Participants will be interacting with blockchain experts and exchanging ideas. Those attending will also have the opportunity to test real life applications of blockchain technology and interact with companies that are developing new insurance products and services.

“The blockchain may undermine underwriting and the insurance value chain and could thus pose a challenge to traditional market players.”
— – Swiss Re