For insurers Blockchain is the new black Navigating the hype and understanding threats and opportunities September 20 Customer Centricity Dr. Magdalena Ramada (WTW Research and Innovation Center) 20 Willis Towers Watson. All rights reserved.
What is the blockchain? Trying to keep a bird s eye perspective Smart Contracts End of counterparty risk Distributed Ledger Tech Bitcoin Digital assets No reconciliation Source: John Godfrey Saxe, Based on ancient Indian fable 20 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only. 2
The Blockchain Hype 3
Blockchain hype Blockchain is the only new kid on the block Gartner Hype Cycle for Emerging Technologies 20 Gartner Hype Cycle for Emerging Technologies 20 4
Blockchain hype The waves of #insurtech change Ongoing In progress Globalization Mobile technology Medical advances Integration with social media Big data Predictive analytics Internet of Things Blockchain P2P Developing Early adoption Comparison platforms Disruptive The future? Automation Artificial Intelligence Instantaneous billing Real-time adaptive pricing based on changing customer needs and shared data Per-use and personalized products 5
Blockchain hype The take-off of #blockchain and #insurtech $430M $1.1B 42 Invested in #blockchain start-ups in 20 Total all-time investments in blockchain technology Systemically important financial institutions are part of R3CEV consortium to do R&D on blockchain for #fintech $135.3M 1/3 Raised in 9 blockchain investment rounds by investors like AXA Ventures, Goldman Sachs, J.P. Morgan and Santander InnoVentures Chasing low-hanging fruit: incremental innovation through better processes and efficiency 311K Tweets per hour on #blockchain, of which 19% linked to #fintech and 7% linked to #insurtech 24% of Blockchain news in past 12 months relate to FinTech or InsurTech 4x YoY increase in the number of blockchain start-ups as of Q1 6
IN THE MEDIA Blockchain hype BLOCKCHAIN July 20 July 20 2500 2000 2071 2023 00 1369 1383 1454 BLOCKCHAIN 1000 1032 904 12 500 304 583 634 712 BLOCKCHAIN + FINTECH 0 48 JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL BLOCKCHAIN + INSURTECH 7
IN THE MEDIA Blockchain hype 140 120 100 80 60 40 20 0 BLOCKCHAIN July 20 July 20 1 0 0 JUL AUG 28 61 12 5 5 6 8 0 1 0 1 5 6 2 0 SEP OCT NOV DEC JAN FEB MAR 55 56 APR 124 98 7 6 9 MAY JUN JUL INSURTECH BLOCKCHAIN + INSURTECH 459 INSURTECH PAST 12 MONTHS TOTAL 108,019 FINTECH PAST 12 MONTHS TOTAL 12000 10000 8000 6000 4000 2000 0 11 959 JUL 6331 8623 8692 7347 7994 8389 9055 9965 9943 10389 10346 9986 39 90 112 211 235 190 248 409 414 4 493 357 AUG SEP OCT NOV DEC JAN FEB MAR APR MAY FINTECH BLOCKCHAIN + FINTECH JUN JUL 8
Blockchain 101 9
Blockchain?? What is Blockchain? It is a shared distributed (digital) ledger technology Combines: P2P file sharing Cryptographic consensus Main attributes: Distributed Immutable Transparent Safe No trusted partners Different types: Private vs. public Permissioned vs. permissionless Consensus types Centralized Distributed Decentralized 10
Blockchain and #insurtech Unlocking opportunities 11
Blockchain & insurance Six ways Blockchain could disrupt insurance Event-triggered smart contracts Increased back-end efficiency Disintermediation Better pricing and risk assessment New types of insurance Reaching the underserved Automated claims Self-executing contracts Reduced fraud, improved customer experience Decentralized, fully digital, safer markets Less human error, no data duplication Less processing delays, transaction costs Decentralized carrier consortium Automatic identity validation Self-executed transactions No need of trusted partners Real-time, individualized Automatic data sharing for analytics and pricing Risk transparency through connected economy P2P, shared economy, spot-insurance, hybrids More transparency, less costs Social media and crowdsourced oracles Solves many microinsurance challenges Automatic construction of distributed database Better prices through simplicity and efficiency 12
Blockchain & insurance Six ways Blockchain could disrupt insurance Event-triggered smart contracts Automated claims Self-executing contracts Reduced fraud, improved customer experience Smart contracts cannot fetch external data on their own Oraclize as connection between Web APIs and Dapps Trustworthiness through cryptographic proof 13
Blockchain & insurance Six ways Blockchain could disrupt insurance Event-triggered smart contracts Automated claims Self-executing contracts Reduced fraud, improved customer experience A powerful trio for insurance: IoT, Big Data and SmartContracts 2013 2014 20 Already applicable to any type of parametric insurance IoT oracles: e.g. appliances and product insurance, UBI, smart homes and fire insurance Crowdsourced oracles Social media oracles 14
Blockchain & insurance Six ways Blockchain could disrupt insurance Increased back-end efficiency Decentralized, fully digital, safer markets Less human error, no data duplication Less processing delays, transaction costs By replacing the human interventions which are currently embedded throughout the entire risk transfer process, frictional delays and the risks of human error are completely removed with a radical effect on the speed and efficiency of the process and, in the case of bonds, on the tradability of such securities. Richard Boyd, ART Chief Underwriting Officer First transacted blockchain enabled natural catastrophe swap Applicable to cat bonds Acceleration of transactional processing and settlement, less manual processing and authentication Increased reliability, auditability and tradability of cat bonds and swaps Looking into blockchain enabled payment processes in international fronting for captive insurers
Blockchain & insurance Six ways Blockchain could disrupt insurance Disintermediation Decentralized carrier consortium Automatic identity validation Self-executed transactions No need of trusted partners Dynamis vision is fully distributed insurance organization which does not need an underwriter. A P2P DAO. Their first (launched!) product is peer to peer supplemental unemployment insurance protocol which uses policy holders' social capital to replace underwriters and it is programmed on Ethereum Consequences on reserves and regulation: unbreakable escrow Chain That: their vision is a fully digital and automated, blockchain and Smart Contract version of Lloyd s of London No need for a physical central authority overseeing the marketplace
Blockchain & insurance Six ways Blockchain could disrupt insurance Better pricing and risk assessment Real-time, individualized Automatic data sharing for analytics and pricing Risk transparency through connected economy From segmentation to personalization On-demand insurance for any product, any time Price changing real-time according to geolocation, activity Blockchain provides unprecedentedly secure environment for real-time and open-access data sharing In non-trusted partners P2P type of setting, blockchain smart contracts could match you to an investor comfortable with your risk profile based on your personal data, registered in the ledger and immutable, historical and fully encrypted 17
Blockchain & insurance Six ways Blockchain could disrupt insurance New types of insurance P2P, shared economy, spot-insurance, hybrids More transparency, less costs Social media and crowdsourced oracles Blockchain will not reinvent the way insurance is done, but will enable the transparency and scalability of new types of insurance and provide a framework for self-regulating organizations among non-trusted partners 18
Blockchain & insurance Six ways Blockchain could disrupt insurance Reaching the underserved Solves many microinsurance challenges Automatic construction of distributed database Better prices through simplicity and efficiency Saldo.mx a mobile payments platform launched Consuelo a blockchain enabled life and health microinsurance product for Mexican migrant workers in the US Blockchain is being explored for parametric crop and weather microinsurance products in SSA Mapping the unmapped: Mobile technology has proven to be the best way to access population that is: Unbanked Undocumented Geographically dispersed Distrustful Blockchain could in addition: Lower administration costs associated due to: Low customer loyalty High volume of cancellations Generate a distributed and immutable database tracking risk and behaviour 19
WHAT NOW? To use or not to use Blockchain Database? Yes Shared written access? Yes Trusted writers? No Trusted 3 rd party wanted? No No No Yes Use Blockchain Conflict of interest? Yes Yes No No Blockchain Yes Control needed Consensus? No Intra-firm Inter-firm Private Transactions need to be Private BC Hybrid BC Public BC Public 20
Questions? Magda Ramada Magda.Ramada@willistowerswatson.com @MagdaRamada @WTWrisk Magdalena Ramada Sarasola, PhD 21
Appendix or everything else you wanted to know and didn t dare to ask 22
Blockchain?? What is Blockchain? going into more detail A blockchain is a digital file that is built in blocks Each block of the chain can be seen as the pages in a book But blocks are chained through cryptographic fingerprints So, each block references the previous block with a fingerprint that is uniquely generated through that block s content Hacking any data in a block implies regenerating all fingerprints after the hacked block, which cannot be done in a way that doesn t modify the blockchain Source: Digital Currency Labs 20 23
Blockchain?? What is Blockchain? going into more detail Structure of a transaction in Blockchain: 1. A transaction transferring value between 2 (or more) network users is requested 2. Network checks that transaction can be executed (e.g. provenance of transacted assets is registered in the blockchain) using preestablished algorithms 3. Consensus is reached among validator nodes to authorize transaction 4. Transaction is executed 5. Transaction gets cryptographically recorded (who, what, when, for how much, new asset ownership) Source: Digital Currency Labs 20 24
Blockchain?? What is Blockchain? Consensus Blockchain gets maintained through economic incentives (usually) paid out in a cryptocurrency Network nodes acting as miners validate transactions, add them to their own copy of the ledger and then send the added ledger block to rest of nodes In the bitcoin blockchain, a new block is created, added and published to the rest of the network, around every 10 minutes Originally, the blockchain mechanism was developed to have an immutable audit trail on bitcoin transactions and to prevent double-spending of bitcoin in a system without any central oversight Hashgraph consensus and the Gossip protocol Consensus can be generated in various ways 25