Financial technology think tank Z/Yen and PwC have released new research under the Long Finance project, stating that the wholesale insurance market is a natural fit for the reconciliation and compliance enhancing capabilities of blockchains.
The report, which is based on interviews with brokers, insurers, reinsurers, regulators and trade bodies from across the global wholesale insurance market, reiterates what Z/Yen executive chairman Michael Mainelli has been saying about blockchain-type solutions for ages.
As well as cost reduction and improved efficiency, blockchain could be a transformative technology changing the way the industry operates, enabling revenue growth in the sector as higher-quality service leads to new business, said a statement.
The potential for blockchain to deliver substantial value to financial services is enormous. For example, recent estimates from Goldman Sachs found that in banking, consistent use of blockchain in KYC/AML checks alone could save $2.5bn of the estimated $10bn global processing costs in the sector.
Z/Yen and PwC note that relationships with customers, regulators and business partners should improve as blockchain reduces errors and improves accuracy.
PwC's Belfast-based blockchain technology team worked with Z/Yen in undertaking the global industry survey, which was the first global initiative intended to determine how Blockchain technology could revolutionise and transform the world's insurance industry.
The report outlines three areas where blockchain technology could have the greatest impact on wholesale insurance:
Facilitating the placement and management of the insurance contract including all relevant documentation, starting with the clients' insurance application, broker placing the risk, insurers accepting risk, then managing all changes and transactions throughout the life of the contract.
Using a blockchain to store and share documents between brokers, underwriters, the insured and reinsurers would reduce errors, processing time and cost by removing duplicate entry of data and reconciliation, ensure consistency and provide instant access to accurate information. As part of this research PwC built a proof of concept blockchain to demonstrate how this might work.
A blockchain incorporating all documents created in a claims process would enable all parties involved to instantly access information, monitor and review the process. This will allow the client, brokers and insurers to handle the claim far more quickly, provide additional information as needed and make faster decisions to enable much faster resolution of the claims. Benefits include reduced delay and cost, greater legal certainty and improved customer service.
Reducing the burden on customers and businesses around proof of identify 'know-your-customer', anti-money laundering and sanctions processes.
A blockchain recording customers' proof of identify documents and evidence of validation would offer a single point of checking and would cut down the time currently spent on multiple checks for a single transaction.
Currently all brokers and insurers involved in an insurance contract have to independently run all of these checks thus creating significant duplication and delay in the placement process which impacts the client.
Removal of this duplication will reduce the processing cost and speed up the placement of the insurance contract which will provide a better and more convenient process for customers. There would also be less risk of error and the negative reputational impacts of this. The possibility of insuring time-critical transactions is introduced.
The report suggests that collaboration, trial and experimentation will be key for wholesale insurers looking to successfully implement blockchain technology. Firms working together to implement blockchain technology will accrue the benefits as their interactions become more efficient.
Jonathan Howe, UK insurance leader at PwC, said: "Wholesale insurers have recognised the benefits of blockchain technology and have identified where they'd like to see solutions implemented. The challenge now is to build on this solid beginning."
"It will be a case of trial and error. Firms need to be realistic - any proposed changes have to be viewed in the context of how they will impact the market as a whole - the industry is data heavy and the actions of brokers, insurers and reinsurers are all interlinked.
"We must remember that blockchain will not be the best solution for all insurance processes - we must look past the hype. The key is identifying where it will provide value. For some processes it will be game changing. Blockchain has huge promise to be a force for good - it is an enabler for the wholesale insurance sector to continue its role in underpinning the global economy."
Professor Michael Mainelli, executive chairman of Z/Yen Group, added: "Mutual distributed ledger (aka blockchain) technology is ideal for supporting multi-party business processes. The insurance community is highly cooperative, with more to gain from greater cooperation. We believe that insurers are likely to build some of the largest blockchain applications outside of the payments sector."
The study includes a technical Proof of Concept developed by PwC to illustrate how blockchain technology can be applied to solve business problems in wholesale insurance.
Steve Webb, financial services blockchain leader at PwC, commented on the technical Proof of Concept developed by PwC: "With a new technology that is attracting as much attention as blockchain it is important to be able to demonstrate to people how the technology works. The Proof of Concept we have built picks up on many of the themes in the report."
"We are able to demonstrate a functioning policy placement demonstration illustrating how data can be distributed between multiple different participants, how the transaction history creates certainty of what offers are made and accepted and how resilience is enhanced as there is no single point of failure."