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Everledger Uses the Blockchain, Tackling Conflict Diamonds And Insurance Fraud

The global diamond industry has long suffered from unique problems, including origin tracking, document tampering, and insurance valuation disparities. A London based startup, Everledger, believes that Bitcoin's blockchain may be the key to solving them all.

According to the World Diamond Council, approximately 30% of all diamonds are used as jewelery and 70% are sold for industrial applications such as cutting, drilling, grinding and polishing. The diamond industry is continually growing, with global jewelry sales alone currently in excess of $72bn per year. That’s a three-fold increase over the past 25 years.

There is no good and effective method to find out where a rough diamond comes from. To prevent blood diamonds from conflict regions making their way into the legitimate diamond supply chain, and then into the hands of retail customers, a certification system called the Kimberly Process (KP) was introduced. Its goal is to promote the trading of diamonds from legitimate sources, and to ensure that consumers can be confident in the origin of their diamond purchases.

Open to all countries that are willing and able to implement its requirements immediately, the KP has 54 participants representing 81 countries, with the European Union and its Member States counting as a single participant. KP members account for approximately 99.8% of the global production of rough diamonds.

Conflict or “blood” diamonds are typically used by rebel movements and their allies to finance conflict in war-torn areas, particularly in central and western Africa. These diamonds were notoriously used to fund operations that undermine legitimate and internationally recognized governments, most notably during the brutal conflict in Sierra Leone during the late 1990s. At that time conflict diamonds were estimated to contribute about 4% to the world’s diamond production. Today that number is reduced to 1%, and holding steady due to several global outreach programs.

Banning a conflict region does not solve the problem alone, diamonds can still be exported by smuggling. For conflict areas the Kimberley Process requires authorities to sort out which diamonds are legitimate, and give them a KP Certificate for exportation. For this reason bans are rare, despite the strong apparent need for them.

“The only recent example of a total ban was for diamonds coming from Marange in Zimbabwe. Here, for the first time, a government had run foul of the KP, and some of these diamonds were easily identifiable because of a green tinge visible in polished stones. But the KP shot itself in the foot by allowing Zimbabwe to export several million carats of these stones, so many are in the legitimate trade. The Zimbabwe situation has forced the KP to try to re-define conflict diamonds to incorporate human rights’ issues, something which it was never designed to do and which has not yet been achieved."
— –  Harry Levy, President of The Gemmological Association of Great Britain

Tracking a diamond from the mine to the retail store is clearly a tricky process, and is far from perfect. Instead of recording asset tracking from owner to owner, Everledger is combining data from insurance companies, police departments and certification houses. The goal is to provide an accurate database that is available to everyone, on the blockchain.

“It gives us a global ledger, a global transparency over the supply chain and the chain of custody of the diamond. where did the diamond come from? was it a blood diamond? whats the provenance? what mine did it come out of?”
— – Leanne Kemp, Everledger CEO

Earlier this year, Kemp took Everledger through a 13-week accelerator program, sponsored by Barclay’s Bank.  The company has now started offering the service to insurance companies and law enforcement, through the website and an API. In the near future they plan to expand the service beyond diamonds, adding other high-end luxury goods.  “Our technology can be extended to track any asset that carries a Unique Identifier which is difficult to destroy or replace,” states the Everledger website.

With a long professional history in the tech sector, experience with supply chains, and an insurance qualification from the Chartered Institute of Loss Adjusters, Kemp is also focused on using Bitcoin technology to combat fraud.

According to a 2013 insurance fraud survey of 143 US insurers, conducted by the Fair Isaac Corporation (FICO) and the Property Casualty Insurers Association of America (PCI), 31% of insurers estimate that up to 20% of claims are the direct result of fraud. 57% of the insurers surveyed said they anticipate a rise in losses due to fraud on personal insurance lines – policies designed to protect individuals and families.

Everledger was first and foremost built to provide a platform for insurance companies and law enforcement to combat this problem. “Identification of fraudulent claims help to uncover the sale of stolen valuables and can aid their recovery. We work alongside crime agencies to assist in the identification of cross border transactions, money laundering, and counterfeit goods,” Kemp explained.

“I saw a gap in the market, not only in the supply chain side, but in insurance to be able to assist in validation of the actual claims.”
— – Leanne Kemp, Everledger CEO

Kemp’s love for diamonds added to her insurance expertise, and put her in a unique position to understand the problems that are facing the industry. On the blockchain, every scrap of information about a diamond can be recorded, and made publicly available.

To deliver the full service, Everledger actually uses more than one Blockchain. As well as storing timestamped information on the bitcoin blockchain, a second custom blockchain has been created by Eris Industries. “We do this in order to get the best of both worlds; high security of a public blockchain, and the complexity and amiability of a smart contract enabled private one,” states the company.

In a podcast with Consult Hyperion, Kemp dug deeper into her reasons for starting the company, “a part of the issue for us when we looked at the ecosystem of diamonds, at the very origin, the industry is hugely concerned with blood diamonds and is hugely concerned with provenance.”

She carefully explained the lifecycle of a diamond before Everledger existed. After mining and cutting, diamonds are sent for certification. Certificate houses inspect the diamonds, while laboratories grade them using the 4C’s – cut, carat, clarity and color.

Certification houses then typically serialize the stones and issue physical certificates with all the attributes of the diamond, including the girdle dimensions and hand-drawn line pictures. These certificates follow the diamonds into retail chains, and increase the price of the stones considerably.

“Previously, these certifications belong to certificate houses. Not only are they not readily available to the public, but you have to trust the certificate houses which are not immune to corruption. In addition, only a portion of the data is released” explained Gaurav Rana, CTO at Everledger, who was also featured in the podcast.

"Part of the problem is when these diamonds get lost or robbed, the diamonds actually end up in the police department and the police department has no way of communicating with the insurance companies."
— – Gaurav Rana, Everledger CTO

Kemp recognized that as a startup, her business will only survive if there is a solid business model built in. "The revenue model comes from where we sit in the industry and that is identifying fraud related instances, which is a heavy problem globally." She said, “at the moment we are focused on providing a great product for the insurance industry, we are  triangulating the certificates, the police Interpol, Europol, as well as the insurance companies. So actually about the time that a policy holder insures the diamond, we are insuring that that diamond is, in fact, real, so they are not trying to insure something that is a $40,000 stone when in reality it is a fake diamond. And, we are insuring that the claim itself is legitimized and that diamond hasn’t been used in previous multiple claims.”

The origin of these stones may take a back seat to the issue of insurance fraud, which Kemp sees as the largest target market for Everledger to address. She explained that insurance fraud is a global problem with incomplete global statistics, but for instance insurers lose 45 Billion Pounds annually in the US and Europe.


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