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Swiss Re Institute Symposium Insurance at the crossroad of technology development and growth opportunities
31 October 2017
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Morning Session 3:Blockchain and the B3i initiative• Shyam Nagarajan, Director Blockchain Client success, IBM• Paul Meeusen, Head Distributed Ledger Technology, Swiss Re
Blockchain in Re/InsuranceTechnology with a PurposeSwiss Re InstitutePaul Meeusen, Head Distributed Ledger Technology, Swiss ReShyam Nagarajan, Director, Blockchain Client Success, IBM
Singapore, 31 October 2017
• The Protection Gap
• Frictionless Risk Transfer
• How Technology Can Help
• Benefits and Outlook
• Opportunities for Singapore
Agenda
5
6
Protection Gap
6
Significant Under-insuranceAcross regions and classes of business
7
• Large part of [natcat] risks non-insured
• Insurance relying on subsidies
• Growing pension funding shortfalls
• Rising medical and health insurance costs
• Preference to share rather than own
• Global citizens wanting global cover
7
A growth market !
8
The Era of the “Customer”Needs Have Changed
9
• People want efficient identification process
• They have a profile to share
• Don’t want Tech to bring vendor lock-in
• Expect more intelligent claims management
• Want (insurance) companies to co-ordinate
• Customisation through standardisation
9
Our response?
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Frictionless Risk Transfer
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11
Network Health TestLess frictions make healthier network
TrustCo-operative spiritbrings high trust
NetworkOperating as a
network brings value
SharingShared and reliable
data ownership
UpdatingAll parties agree changes to data
TransactingSmart contracts
reliably automate mutual processes
IntermediariesIntermediaries add
efficiency, speed and value
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Score: 1 (low) – 5 (high)
3.0 2.0
1.51.0 1.0
2.5
Average Score (sum of scores / 6)
Strong networks 4-5Weak networks 1-2Insurance 1.8
Insurance dilemma:
High trust
&
High frictional cost
Root Cause of FrictionsReinsurance Risk Transfer – B3i’s Use Case
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Traditional ledger Distributed ledger
Reporting
Reconciliation
Reporting
Reconciliation
$$
Shared
ledger
Data
Input
Automatic
Validation
Automatic
Validation
Automatic
Validation
Automatic
Validation
Automatic
ValidationAutomatic
Validation
ReportingReporting
Reporting
Insurer Reinsurer Retrocessionaire
• Slow• Contract uncertainty• Operational Risk
• Data quality issues• Cumbersome reconciliations• Working capital
Entire value chain is ripe for automation
13
Insured Insurer ReinsurerRetro-
cessionCapital Markets
Transaction flow across multiple layers of counterparties within the “Digital Vault” enabled by Smart Contract & Blockchain
Smart Contract
Blockchain
Start here
Risk underwritingPolicy/Premium
ManagementClaims
HandlingFinancial
Settlement
A Closer Root Cause AnalysisProcess Friction Points
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Contract (un) certainty and
identitymanagement
Manual processes, pairing and latency
Data duplication, inefficiency and
fraud risk
Settlement andreconciliation
latency
Process
Challenges
Solutions
Immutable contractlogic with
digital validity
Dispute-less andself-executed IoUs
Central truth, eventoracles and smart
contract rules
Peer-to-peer, netting and friction-
less
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How Technology Can Help
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Blockchain concepts: Business networks and assets
Tangible
eg. house
Intangible
eg. bonds, property
titles, digital music
Business networks, markets Assets
Blockchain participants come together
in a network
Assets are transferred
across the network
Shared Ledger
The system of record for a business.
Blockchain: Fundamentally changing business processes
Smart Contracts
PrivacyShared Ledger
Trust
Company A’s records
Bank’s records
Auditor’s records
Vendor B’s records
• Inefficient
• Expensive
• Vulnerable
Digitally signed,
encrypted
transactions and ledgerAll parties have
same replica
of the ledger
Company A
Bank
Auditor
Vendor B
• Provenance
• Finality
• Immutability
IBM – Private, permissioned Blockchain networks – not Bitcoin public, anonymous Blockchain networks
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Blockchain underpins Bitcoin
• An unregulated shadow-currency
• The first blockchain application
• Resource intensive
Blockchain for business differs in key areas:
• Identity over anonymity
• Selective endorsement over proof of work
• Assets over cryptocurrency
is:
• Paper based identification of insured
• Digital identity on the blockchain - persons, insured asset or businesses - Financial institutions certify their own participants
• Automates KYC process etc. • Reduces UW risk because of reduced fraud
• Contract uncertainty
• Repetitive, manual, paper based workflows with approvals, signatures, etc.
• Smart contracts (executed by trusted digital identities) automate state changes in the contract workflow
• Execution is endorsed, validated and committed to the ledger, using certificate enabled digital signatures (accountability)
• More complex crypto primitives such as zero-knowledge proofs can be used to express arbitrarily complex agreements
Who WhatWhen
• Contracts are captured as digital assets on the chain with one view of the contract T&C’s and limits
• Transparency & visibility of payment status to involved parties• Immutability – no unilateral and non-verifiable modifications
PROBLEMS
Risk Underwriting
Policy & Premium Management
Claims Handling
Financial Settlement
Removes need to explain “over & over” again
Solutions
Removes latency & inefficiency between invoice & payment
• Permissioned blockchains run on efficient consensus protocols (Endorse-validate-commit )driving throughput
• Transparency & visibility of due dates and single view of policy across all parties involved
• Invoice (& payment) is a digitally agreed asset - eliminates disputes
• Immutably committed to the ledger on achieving consensus• Removing latency improves working capital and cash flow and
decreases counterparty risk
• Invoice smart contracts automatically without intermediariescommunicate amounts owed to the counterparty
• Audit, checking & reconciling is limited to auditors participating on the chain
• Smart contract allow flexibility in payment options - no bordereau is required
• Inefficiency in payables/receivables
• Lack of visibility and inconsistency around due dates
Who WhatWhen
• Latency between invoicing and payment
PROBLEMS
Risk Underwriting
Policy & Premium Management
Claims Handling
Financial Settlement
Solutions
Improves FX conversion
• Invoicing calculations can be computationally intensive and capture taxation and FX conversions - With the use of FX oracles, all computational logic is encoded into smart contracts, eliminating human intervention
• Unclear rules and sources for FXrates (FX)
Who WhatWhen
• Central oracles (sources) ensure common sources of FX rates, avoiding differences in sums owed vs received and the eliminating reconciliation differences (rate, timing, fees etc.)
As a result, the dependency on outdated banking systems is eliminated
• Conversion (FX)
PROBLEMS
Risk Underwriting
Policy & Premium Management
Claims Handling
Financial Settlement
Solutions
• Predictive and cognitive insights on ledger data• Advanced fraud detection algorithms can run in place and
detect/predict fraud• High fidelity risk estimation
• Globally agreed single source of truth for claims (subrogation) & loss - with customer visibility of progress
• Secure Oracles present real time event information (e.g. catastrophe) for consensus in order to add to the ledger
• Eliminate (or reduce) data aggregators
• Smart contracts and ledger based analytics drive STP and minimize delays for customers with high claims processing accuracy
• In certain areas such as parametric insurance, driven by oracle based event signals, even the need to file a claim can be eliminated, resulting in payouts with minimal delays
Who WhatWhen
• Delay in payouts• Bad customer
experience
• Same (loss) data is duplicated among parties
• Bad customer experience
Who WhatWhen
• Insufficient use of big data
PROBLEMS
Risk Underwriting
Policy & Premium Management
Claims Handling
Financial Settlement
Solutions
Better customer experience, automation & intelligence
• Stellar XLM
• Bitcoin
• Tokenized Metals (Gold)
• IMF Digital SDRs
Digital Asset Alternatives:
• Other Cryptocurrencies(XRP, ETH)
1
D D
6
CAD Bank
(Sender’s Bank)CAD BRL
2
3 4
5
Total transaction time ~ 10-15 seconds
Clearing: Funds made available through existing banking relationships or using crypto currency ( digital assets )
Settlement: Transactions are atomic and settled instantly by exchange of a digital monetary asset
Digital assets are also used as an intermediary bridge for FX.
Certainty: Payments linked to policy premiums / invoices
Digital Wallet / Member Services: Netting, IOU, Promissory notes canbe maintained at account / network level for the member.
Why Blockchain ?
• Shared Ledger
• Smart Contracts• Finality
• No double spend
Near Real-Time International Financial Settlements
Risk Underwriting
Policy & Premium Management
Claims Handling
Financial Settlement
Brings near real-time settlement
Blockchain pilots in Asia Pacific
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Pilot Use Case Benefits
Claims Processing Reduced claim processing timesReduced error rates/disputes
Policy premium management
Faster and reliable channel for premium collection and claims disbursement.Faster KYC and On-boarding
Peer to peer insurance Group risk managed through provenance.
Proof of insurance Simplifying proof of marine and fire insurance between buyer and sellerReduced on-boarding time and policy activation.
Medical claim payments Automated medical small claims payment.Reduced fraud and better customer experience
Policy Management Faster policy issuance and management
Benefits & Outlook
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As the network is growing…B3i’s Rapid Growth to 38 Members
Market Testing Participants (Cat XoL Product)
B3i Members
• 2017 - Complete market testing• 2018 - Entity incorporation, product enhancement and first live transactions
27
… we move into market testing (Market Testing snapshot 13.10.2017)
B3i members firms currently transacting contracts on sandbox platform (Market Test 9 Oct – 9 Nov 2017)
B3i Market Testing Sandbox 9 Oct – 9 Nov 2017
… and further articulate our business caseOverview of key blokchain benefits as seen by Swiss Re and B3i
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Working Capital Improvement
Faster and more efficient premium and claims settlement and optimised liquidity management
Operational Efficiency and Risk Reduction
Reduction of contract uncertainty, reconciliations and process inefficiencies
Quality and Integrity of Data
Normalised and high-quality data in a shared source with central control over integrity and easier auditing
Foreign Exchange Management
Accelerated FX transactions and consistent valuation
Positive Impacts: • Combined Ratio – conservative estimate of -0.5% • Improved liquidity• Risk Reduction
More info: https://www.linkedin.com/pulse/b3i-turning-blockchain-use-case-business-paul-meeusen?published=u
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… with a strategic outlook and business plan“Masterplan” – how we see use cases develop in re/insurance
Reinsurance Commercial Insurance(wholesale – B2B )
Primary Insurance(retail – B2C)
Materiality High Medium Low
Transaction volume Low Medium High
Homogeneity High (global) Medium (international) Low (local)
Data privacy Medium Medium High (sensitive, regulated)
Diversity of regulation Medium Medium High (per jurisdiction)
1 2 3
Establishing baseline At later stage and in synergy with other technologysuch as IoT, Robots, Chatbots, Sensors, AI
• Gradual expansion of blockchain applications across industry value chain
• Reinsurance good starting basis with less diversity and ability to reach scale quickly
• B3i legal entity in process of being established and expected operational early 2018
Opportunities for Singapore
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How Singapore Can Help
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Pro
mo
teB3i Asia Launch Event
Share B3i experience
Launch activities in Asia
Asia specific use cases
Enlarge Asia Membership
Target: 1H2018
Exp
eri
me
nt Sandbox Testing
Leverage proven sandbox
Conduct market testing
Leverage existing blockchainand cryptocurrencyexperience
Re
pre
sen
t Asia Chapter
Enlarge Asia Membership
Ensure compliance withregulation
Support Asia members
Develop incubator
33
Thank you
www.b3i.tech
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More info: 1. http://institute.swissre.com/research/library/Rdm_Blockchain_Jags_Rao_Paul_Meeusen.html2. https://www.youtube.com/watch?v=QOoZqlUYrws3. Blockchain documentary: www.blockchain-documentary.com
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Legal notice
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©2017 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivative works of this presentation or to use it for commercial or other public purposes without the prior written permission of Swiss Re.
The information and opinions contained in the presentation are provided as at the date of the presentation and are subject to change without notice. Although the information used was taken from reliable sources, Swiss Re does not accept any responsibility for the accuracy or comprehensiveness of the details given. All liability for the accuracy and completeness thereof or for any damage or loss resulting from the use of the information contained in this presentation is expressly excluded. Under no circumstances shall Swiss Re or its Group companies be liable for any financial or consequential loss relating to this presentation.
