// Focus on Blockchain Unlocking the potential of distributed ledger technology Kaenan Hertz, PhD Innovation and Fintech Leader, EY kaenan.hertz@ey.com +.97.288.253
Do you recognize all of these firms? 2
How about these firms? 3
And these firms? Investments in Fintech have reached $45.4B and $.4B in Insurance Tech Source: Investment values based on CB Insights and Venture Scanner as of 3/8/6 4
Investment in Blockchain has surpassed the ~$bn mark According to industry researcher CoinDesk, investments in bitcoin and blockchain have reached $. billion,4. Bitcoin and Blockchain Venture Capital Investments ($USDMM),2.,49.4,. 8. 6. 4. 2. - 49.48 36.53 2.2 95.5 2.3 22 23 24 25 26 YTD* Total - All time * Updated on 3th May 26 Source: CoinDesk EY analysis 5
Why should insurance firms care about Blockchain? Blockchain has four strong differentiators: ) Distributed 2) Near Real Time - Synchronized 3) Immutable - Secure 4) Digitized Low cost structure 6
Why all the interest in Blockchain? What does Blockchain enable? Blockchain is a Distributed Ledger technology: Enabling a shared ledger of activity amongst untrusted or semitrusted parties Allows the move from master ledgers e.g. clearing houses..to distributed ledgers with no intermediaries How could Blockchain change the status quo? What benefits could Blockchain provide? Disintermediation Automation Risk reduction Transparency e.g. Cryptocurrencies e.g. Smart contracts 7 e.g. Asset registries e.g. Public blockchains Internet of Value e.g. Communal ledgers
Leading Blockchain providers are increasingly partnering with major companies Examples of Blockchain companies with significant funding / partnerships 8
It s not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change. - Charles Darwin 9
DIGITAL HAS CHANGED OUR WORLD AND THE WAY WE INTERACT 39% Of mobile phone owners with a bank account have used mobile banking 63% of mobile banking users check their balance on their phone before making a purchase 73% Used their Smartphone to research a product 2 $77bn Predicted online spend in 25 3 Source:. Communications Market Report, Ofcom 24 (accessed 2/5/25) 2. 23 our Mobile Planet; https://think.withgoogle.com/mobileplanet/en/downloads/ 3. https://finance.yahoo.com/currency-converter/#from=gbp;to=usd;amt=53 http://www.federalreserve.gov/econresdata/consumers-and-mobile-financial-servicesreport-253.pdf (accessed 2/5/25)
What is a Blockchain? Blockchain is Defining Blockchain: Structural features and common characteristics Structural features Technology for enabling shared databases which support multiple writers whose entries are verified through embedded trust models and form one unified transaction log. Common characteristics Decentralised Multiple ownership Multiple writers Real-time synchronicity Trust through design and protocol Consensus based authentication Immutable Chronological chain of activity
How does it work? The most popular implementation of blockchain is Bitcoin Bob Alice Bob Alice -5 +5 Bob owes Alice some money and decides to pay Alice in Bitcoins Bob creates a transaction indicating that he will send 5 BTC to Alice, and submits the transaction to the network The network receives many transactions like Bob s, and nodes work on grouping these transactions together into a block 5 BTC Once a block is confirmed, it is immutable Once as changes confirmed, can only the block be made is added by solving to the the existing complex chain math (blockchain). problem again All transactions within the block are confirmed by the network and the network works on validating the next block. At the same time, the network works to Decentralised consensus validate through all transactions collectively solving the in same the current math problem block by collectively solving a complex math problem Presentation title 2
How is it different? Internet stack The decentralized internet was built on top of open standard protocols, like TCP/IP. Blockchain stack Uses the Internet but adds functionality Commercial and private applications Commercial and private transactions Web browser Email client FTP client See the blockchain stack Others; DNS Telnet SSH Financial Services Custody Payment systems Capital and trading markets Consumer lending B2B lending HTTP SMTP FTP Blockchain Alternative crypto-currencies Bitcoin, Ripple Litecoin Governmentsponsored money See the blockchain money cycle Core public registries land registry, notaries, voting register Transport layer TCP (transmission control protocol) Internet layer IP (internet protocol) Blockchain layer (open source verification of trust) Network layer Ethernet (wired/wireless) Internet stack (open standards stack) 3
Which Blockchain? Public or Private? Understanding Blockchain: Key Design Considerations that inform the type of Blockchain solution required. Access 2. Transparency 3. Identity 4. Administration Design considerations Who can write to the blockchain directly? Who can read the blockchain? Will members be using pseudonyms or realworld identities? Who can authenticate transactions on the blockchain? Open Example blockchains: Degree of openess Closed Public blockchain(s) Private blockchains Public asset registries Digital identity vaults Order routing, smart contracts Anonymous payments Proof of work mining Permissioned authentication 4
Blockchain is exploiting vulnerabilities in the current value chain 5
Blockchain has ushered in a new reality for Financial Services 6
Blockchain in Financial Services Opportunities for the adoption of Blockchain in Financial Services Update Capital markets Wealth management Retail payments Insurance Clearing and settlement Shared books and records enabling triple entry book-keeping ISDA automation Self executing contracts; emulating logic in contractual clauses Securities servicing Origination, issuance and servicing supported by coloured coin tokenisation Asset registry Enforcing provenance and tracking physical movement to combat fraud Digital currencies Internet-based medium of exchange / store of value Payment rails Payment protocol and settlement system based on distributed ledgers Programmable claims Self executing pay-outs to accredited servicers IoT / Collateral monitoring Data registry for smart devices and IoT enabled assets Consortia and partnerships : R3 consortia grew to 43 banks & FS firms Ripple (cross-currency settlement) adds Santander as an evangelist Continued fund-raising: Digital Asset Holdings closes $5m round 26 Ripple raises $32m in 25 Professional services activity: Accenture inks partnership with Ripple Microsoft partners with Consensys Deloitte launch Rubix Ecosystem coordination: Current R3 trials leveraging Ethereum platform Rubix platform leveraging Ethereum and bitcoin blockchain 7
Blockchain in non-financial Services Opportunities for adoption of Blockchain in non-financial Services Update Commerce Industry Telcos Government Provenance and transparency Tamper-proofing marks of trust from source to consumers Inventory management Enterprise solution for managing stock Supply chain management Supply chain oversight; goods tracking and monitoring across parties Remote oversight and management Management of unmanned / remote locations and assets IoT; big data enablement Data collection for smart devices and IoT enabled assets Inter-carrier ledgers Shared ledgers reconciling carrier roaming usage Identity management Digital passports which host or retrieve data Tax and welfare management Ledger and smart contract overlay to identity (above) governing welfare Increased corporate VC coverage: Orange Ventures participates in Chain fund raise Verizon Ventures invests in Filament to explore IoT UPS Strategic Investments unit communicates interest in blockchain Cross industry fund-raising: Chain raises $3m across industries Progress towards IoT: IBM working in partnership with Samsung on ADEPT (Autonomous P2P Telemetry) Government interest: Go-Science recommends GDS and DCMS build blockchain into their considerations 8
Blockchain for Finance and Audit Opportunities for adoption of Blockchain in Professional Services Assurance / Tax Legal Technology Triple ledger accounting Reporting (e.g. Regulatory / Tax) Intellectual property management Enterprise solutions Shared double-entry ledger with digital signatures Shared databases and smart contract overlays facilitating reporting Registry recording ownership of IP and content rights Overlay to amalgamate disparate silo-ed data sets within organisations Communal auditing Compliance procedures Self-executing contracts Cyber-crime & Security Auditing via reconciliation between triple-ledgers (long term possibility) Immutable, time-stamped records of activities demonstrating compliance Self executing contracts; emulating logic in contractual clauses Cyber security solutions facilitating anchoring and merged mining 9
Blockchain is Already Here! Stores personal information Miicard SheCard OneName Making it easy switchless Rubix Money transfers BitPesa ripple Circle Bitspark Abra Align Commerce Smart contracts creation Blockstream Counterparty BitHalo SmarContract Buy & sell bitcoins coinx hbit Bitstamp Tracoin coinmeter Shares trading Overstock Chain.com Clearinghouse Bitfury Factom Digital Asset Holdings Blockstream Store & manages assets colu everledger Serica Source: Blockchain: Disrupting the Financial Services Industry, Deloitte, https://www2.deloitte.com/content/dam/deloitte/ie/documents/financialservices/ie_cons_blockchain_5.pdf 2
INSURANCETECH BLOCKCHAIN EXAMPLES P2P Insurance Insurance for Sharing Economy Fraud Detection 2
22 Use Case: Distributed Ledger INSURANCETECH EXAMPLES Allows the move from master ledgers, e.g., clearing houses, banks to distributed ledgers with no intermediaries Developing and offering cryptocurrency denominated products Process payments Clearing and settlement solutions Virtual wallet / payments / exchange offering The distributed ledger technology can be used for more than currencies:
INSURANCETECH EXAMPLES Use Case: Distributed Ledger - Implications for Audit (/2) A greater emphasis on internal controls An audit would need to make sure that the distributed ledger tech can be relied upon to validate accuracy How could blockchain adoption change Audit practices? 2 3 4 New skills to be learned by auditors Elimination of the central record keeper A standard industry format for Distributed Ledgers The new role of an auditor could require requisite knowledge of both accounting and distributed ledgers In a distributed ledger audit, there are reduced needs on the central record keeper. This will change engagement economics Similar to SEC guidelines on XBRL, Distributed Ledgers will need to follow certain rules and standards to ensure consistency across companies 5 Software-based audits (next slide) With distributed ledgers, much of the basic audit could be automated 23
INSURANCETECH EXAMPLES Use Case: Distributed Ledger - Implications for Audit (2/2) Fundamentally re-thinking an audit from samplebased to software-based Currently, audits are a sample-based process. The job of an auditor will change from Excel manipulation to using software that extracts and tests sample data What will software-based audits look like? 2 Automated audits Software-based audits of Distributed Ledgers will allow for greater automation. Traditional audit techniques may become obsolete Current: sample selection is taken to test accounts and transactions (based on statistical confidence levels) 3 Audit Transformation (new tools and concepts) Future: audit software that tests % of the population Current: materiality is a percentage of NAV (in a hedge fund audit) Future: materiality is a formula based on more variables (percentage of NAV, complexity of accounting information system etc.) 24
INSURANCETECH EXAMPLES Use Case: Keyless Signature If we imagine a commercial fire equivalent where a photograph is used as evidence of the cause of the fire, the blockchain ledger can be used to provide chain of custody for all the evidence related to a single loss event. Each request is returned a keyless signature which allows a third party to verify the transaction properties (time, identity, integrity) of the data using the blockchain as a reference. 25
INSURANCETECH EXAMPLES Use Case: Smart Contracts Automatically verifies and executes contract terms Untrusted parties can transact directly with one another Contract changes can be detected and prevented by authorized users Blockchain stores secure contract golden source and audit trail Reduces Risk Reduces Cost Eliminates trust issues These peer-to-peer networks for mobile payments of premiums, claims, loans and other transactions will pass from mobile phone to mobile phone in a smart contract-based cloud environment and require authentication of contracts and customers in new markets to ` operate distributed authenticated corporations. 26
INSURANCETECH EXAMPLES Use Case: Dynamic adjusting premium within a Distributed Ecosystem Smart devices Real time premium adjustment Blockchain Analytics 27
INSURANCETECH EXAMPLES Use Case: Current and future state of claims processing Process Customers Cost Realtime Current state Future state 28
Potential Challenges Understanding the disruptive benefits/effects of blockchain technologies Formulating strategies and roadmaps to attain benefits Operational integration with existing businesses and capabilities Scalability of the technology 29
INSURANCETECH EXAMPLES Roadmap to get started with Blockchain Business Strategy Prototype Vendor Assessment Re-evaluation Soft use test 3
Thank You! Kaenan Hertz kaenan.hertz@ey.com +.97.288.253