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Insurance Blockchain and the Next Steps Towards Collaboration, Implementation, and Scalability
What do incumbent insurance corporations, and other financial institutions have to know about blockchain, and how can they move from talking to action? Discover the findings in this panel discussion with Frank Desvignes (AXA Labs), Philip Proost (B3i), and Oliver Volk (Blockchain Enthusiast).
This panel discussion on the topic of ‘Blockchain: next steps towards collaboration, implementation & scalability’ was performed at InsurTech Rising International 2019 at Station F in Paris. It was moderated by me (Karl Heinz Passler, Product Manager at Basler Versicherung / Baloise), and contributed by Oliver Volk, Blockchain Enthusiast working at Allianz; Frank Desvignes, Global Head of AXA Next Labs, and Philip Proost, COO at B3i.
The Talk in Transcription
Note: This transcription is edited, slightly smoothed, and shortened for reading purposes.
Introduction of the Panelists
Hello, and welcome to this panel discussion on the topic of Blockchain. I am Karl Heinz Passler (KHP), the Moderator of this panel conversation. Before we get to the first question, let me introduce the real experts on Blockchain.
Our first panelist is Oliver Volk; he is a real Blockchain Enthusiast working at Allianz. Regarding Blockchain, Oliver was active in setting up the Allianz Re Blockchain Initiative. After that, he was active in contributing to the Allianz Re and B3i pilot project. And third, he is a founding member of the Bavarian Blockchain Association.
Our second panelist is Frank Desvignes, Global Head of AXA Global Labs. Frank connects the ecosystems of insurance, technology, and startups to build innovative business models on top, and this worldwide. One crucial part are Blockchain initiatives.
Our Panel will be complete with our third panelist. Phillip Proost, he is leading B3i as a COO (Chief Operating Officer). The B3i is the Blockchain Insurance Industry Initiative. Phillip has a prudent C-Level track record developing and leading transformation and scaling initiatives in large insurance corporations and cooperating with startups.
Talking About Blockchain in Insurance
KHP: Is Blockchain and Distributed Ledger something new in the insurance industry?
Frank Desvignes: Let us have a view on the history of the insurance business. Take a look at the 17th century, in 1680 where Edward Lloyds created a coffee house in Turban Street in London. Captains, ship owners, and merchants came together for the first time and underwrote the risk for the ships to go to the nations. And I believe they were writing on a ledger. And I think this ledger is very related to what the Blockchain could be today for an insurance player.
KHP: Under what circumstances should insurers consider using a Blockchain?
Oliver Volk: You might have seen those decision trees with the headline, do I need a Blockchain? In my presentations, I usually have the first slide which answers (do I need a Blockchain?) with No! For me, this question is not the best one. You need a Blockchain if you have a topic that Blockchain can solve. Don't look for something where you can apply Blockchain. Instead, you should have something where Blockchain might be one technology that could solve this problem.
Oliver Volk: The insurance industry is very paper-based, and there are many manual processes. I think it's great technology. There is a great potential to automate the way we work, and Distributed Ledger Technology (DLT) could be a great way to do that. Besides the financial industry, I think the insurance industry has great potential. Here the distributed ledger can be an applicable technology. But it is not that we have to use Blockchain in each sector or every process.
KHP: Why Should Insurers Start Dealing With Blockchain Now?
Oliver Volk: From an outside perspective, it looks like the hype of Blockchain went down a little bit. It has not been a very disruptive thing, and we haven't seen real-life projects very much. But there's a lot going on under the radar. So, it doesn't make sense to step back now and to say; I want to be a smart follower than a first mover. Because you should analyze the ecosystem, you have to see what's going on, and you have to be a little bit prepared for Blockchain applications even though Blockchain is still in research and development and will not be an off the shelf product in the near future.
Oliver Volk: Even if there is something which you can apply, you must be prepared to use this technology. You need a corresponding management system because it's a platform technology. Blockchain raises huge issues in the standardization of processes before you can apply it, and it raises big issues in the implementation process. You really should do some projects to be prepared for this. Otherwise, you will lose contact if there is something that you can apply.
KHP: What are the best ways of using Blockchain in insurance?
Philip Proost: I think it's really about making sure that we can use something like this technology in a sense for the first time to begin to think about creating efficiencies across the marketplace. There are efficiencies that you will not be able to achieve on your own. You may have maximized your individual company benefits. You may have maximized your cost ratio. You may have improved all the things you're doing around claims leakage, but ultimately we're all doing the same things multiple times on single contracts.
Philip Proost: As a market, we can share the contract through a distributed ledger and only do it once. So that means only doing data entry once across the whole marketplace. And that means only doing technical accounting once across the entire market. Now it doesn't have to be something that's mega standardized in the first instance. You can use Blockchain to develop entirely bespoke policies, and you can even add your own clauses.
Philip Proost: So I don't think this is really about a drive for standardization. But what it is doing is it's making those underlying processes more efficient, and they bring the industry to start cutting its costs across the board.
KHP: What is taking place under the radar of the Blockchain?
Philip Proost: I think lots are going on under the radar screen because of that value, and people see access to that value as being essential. And what we're discovering is with the network that we've begun to set up is the people who are coming to us and asking if they can start putting some of their individual initiatives on our network. And the whole network becomes important because it's all of us that need to connect. We're all connected currently, but we're connected in quite an inefficient way, and we're all undertaking processes that each other are taking.
Philip Proost: As we think about this, we would all recognize that insurance already acts like a network. For most of what we do from beginning to end. Whether that's through placement, post-placement claims, technical accounting, we're all working with multiple parties. All those parties are connected, and what we've sought to do through insurance, we try to keep ourselves connected in various ways over the years. Whether that's through applications, we bought or whether that's through actually meeting in person. I think it's about making sure that, in a sense, we are using this technology for the first time to create efficiencies across the market.
Talking About Cooperation Between Insurers
KHP: Is Blockchain a single-user application, or is it more kind of an ecosystem? Do I have to collaborate with other insurers?
Philip Proost: I think that a Blockchain or distributed ledger work where you've got multiple parties. You can have multiple parties within an organization and use it alone. But obviously, if you want to take advantage of some of the value you can take from the market like maximizing efficiency or capital allocation, then you have to collaborate between insurance companies.
Philip Proost: For many companies that isn't about choosing a vertical and saying, we're just going to work in re-insurance. And by the way, we're going to change the reinsurance market. I think what it is, is about them choosing things that will be a value to them. The companies we work with have an opportunity. It's sitting there where there's already a network with a set number of participants. There they can start working on a contract and getting people onto the network. And that's what my advice would be.
KHP: Primary insurers are not used to working with other primary insurers. If they work with B3i, they have to work with their competitors. How hard is this?
Philip Proost: I think that everyone understands what they want commercially. But I'll just go back to why distributed ledger is important. So even as a primary insurer, you will probably engage other participants in what you do. That might be claims adjusters. It could be data providers; it could be all those things. Now at the moment, you're finding ways to connect those within your organization.
Philip Proost: If you do this on as disputed ledger, then you're all sharing the information you choose to share between each other. You probably have re-insurance at some level. Well then, you can begin to share your information with a reinsurer to collaborate and get re-insurance if they are on the same distributed ledger. That has significant value because what you're doing for the first time is probably being able to share some underlying information about the assets. The insurable items that want to reinsure and people if you wish to. You can give people a direct line of sight to those insurable items from a re-insurance perspective as well.
KHP: Some experience on collaboration, Frank? Oliver?
Frank Desvignes: Yes. Between insurance and banks, for instance, we've been working with BNP Paribas CIB on two things. But, if we look at what is possible today, it's getting efficiency from our processes. It's mainly about automating processes, based on a share or decentralized database of information that we can use on many different parties, like fraud detection between insurers. Many things could be done. But again, I'm not focused on getting efficiency with the Blockchain, because I believe this is helping us to gain efficiency, but I think there is much more to do within insurers but also with reinsurers.
Frank Desvignes: If we look at the appetite of risk and if we look at the crypto side of the Blockchain, I see the value. I can see the transaction of values, and this is where I believe that there is room for insurance and re-insurance to move to that space and try to work on protecting those transactions and protecting those digital assets.
Frank Desvignes: If we want to forget a bit about the tech itself like we were discussing in 25 years ago about TCP IP, I'm quite sure that in 20 years, we will work with these Blockchain protocols for sure, but we won't discuss Blockchain as we are today. It will be one of the protocols that we use.
Oliver Volk: Regarding the infrastructure topic, I fully agree that like the internet in the 90s, build the infrastructure to access information from everywhere in the world. Blockchain is on the way to become an infrastructure to exchange assets. To have a certain structure where we can move things. And at some point we won't talk about the technology behind it, we just will use it. And this is, on the one hand, within the industry if we exchange between different insurers but also cross-industry, look at use cases with a supply chain management. Where it's all about, where are certain things?
Oliver Volk: This is not mainly driven by insurance, but of course if some container ship has some accident and some containers will be lost. From what I understood is that it takes insurers weeks or months to figure out: Is there something in this container which is insured by us. And if we can use a Blockchain-based infrastructure with sensors and driven by a supply chain management, we as an insurer can participate in this infrastructure.
Oliver Volk: And as Phillip said, we do not have those redundancies applications. We do not have those silos from A to B to C, where everything is duplicated. Of course, we have to take care of the proper access rights. But those are challenges we have to face in terms of regulation and in terms of legislation. But I really think this will be the future as Blockchain as a standard for digital data infrastructure.
Talking About Implementation and Scalability
KHP: Let us take a look at the insurance value chain. I have the policyholder, I have the broker, and I have the primary insurer and then the reinsurer. And now I got 500,000 Euros for a Blockchain initiative. Where should I start along the insurance value chain?
Oliver Volk: Well, I think for this question, there is no right or wrong because you also can extend your value chain to the capital market. And then sooner or later in the future, there might be only the policyholder and the capital market. And everything in between …
KHP: OK, but we must start tomorrow ;-)
Oliver Volk: OK. Then do it as we did with B3i; start with a project where you have some standardized agreements at the beginning, so we do speak a certain common language where we can use a Blockchain application to automate a manual process. This is not disruptive in the first place, but being disruptive in theory might really create big problems in the implementation phase. Or choose any parametric insurance line of business and try to automate this with a means of Blockchain smart contracts and triggers.
Philip Proost: So, if I had the 500,000 Euro I'd be saying to you, where at the moment do you have the most friction in terms of the way of communication. So, where have you got a complex group of people coming together to either generate a single number or to generate an outcome? And I would say I would think about using distributed ledger there first. And I would build a pilot with the participants or a proof of concept with the participants initially on that basis. Now that might be in placement, it might be in claims, it might be at the primary end in engagement with customers. I think it's very dependent on you as an organization because each organization currently has different relative efficiencies in different places.
Frank Desvignes: We started two years ago by launching one of the first insurance policy within a smart contract on Ethereum, by doing a flight delay kind of parametric thing. And it was super interesting, because when we started to work on this use case the answer to the question "Should we use Blockchain for doing this use case?" was no. And we finally decided to do it on Blockchain to gain the experience curve that we needed. And what does it mean? It means that two years later, we've launched many other initiatives. One in Sweden about unemployment insurance connected to the ledger of the state, involving many different third parties. I believe that we now have the right level of experience regarding smart contracts, the use of Blockchain, and distributed ledger technology. So, I believe it's super important to start at some point with a concrete implementation. Not a POC, but really something that is working involving many different parties. And then we will learn about the technology by doing.
Oliver Volk: I fully agree to what both of my panelist colleagues said. I just want to make a distinction between them. On the one hand, Blockchain distributed ledger technology is still in a very innovative phase. And therefore, what Frank said, innovation means you also have to be willing to do a step aside. Think about the change from analog photography to digital photography. At the beginning of digital, you had a memory card where you could put on two or three or four pictures, and it wasn't a visible development. But now everyone has his camera on their smartphone, and no one is thinking about analog photography. So, there's this one thing that you have to push this, not by a business means but a mean by innovation.
Oliver Volk: The other point if we talk about business means, and I also fully agree with Phillip. Let us say, where are the biggest pain points in your company? If you identify them, then you should run a tender. Not looking for Blockchain technology, but really working out your requirements and then inviting companies, providers with different technologies. Because in the end, you do need something which is either cheaper or faster or more secure, more transparent, or more convenient than the process you have now. And you're not looking for something which is just doing Blockchain. Because in the end, you don't care about the technology behind. But if you have the outcome, then it's the thing you are looking for, and it's beneficial for you.
Oliver Volk: And in the last couple of months I really saw some projects, some tenders where they had this constellation and some of them with successful tender pitches with distributed ledger related companies, others not. But if the technology cannot compete against other technologies, then it's, it's either not the time, or it won't succeed in the long run.
Philip Proost: I do think that we have to think a little bit outside of the industry too. So we came to an Event called InsurTech Rising, I suppose. But actually, I think we're in danger sometimes of losing some of the initiatives here. Because I think the reason why a distributed ledger network is valuable is that it will enable, as Frank was saying, us to interoperate with other networks. Whether they're logistics networks or whether they are car manufacturers networks. And what those networks are ultimately doing is, they are recording assets. They are the start of our journey on insurable items. And connecting into those networks will become fundamentally important cause if we don't do it, then other people will.
Philip Proost: Because no longer is claims history the ultimate barrier of entry into this marketplace. Because there are many different datasets nowadays which people can use to understand risk and to rate, and a lot of those are associated with the assets themselves. And I think we need to be logging and connecting to those elements because I think that's what's going to drive our future and our future profitability.
Four Lessons Learned From Our Blockchain Panel
KHP: Thanks, dear panelists. Let us draw four personal lessons learned from our panel discussion today—one after another.
KHP: Let me start with my lessons learned. So, my main question was, is it the right thing to begin to be active on Blockchain right now? I learned, yes, it is. There has been much work behind the scenes and many projects. A lot of activities and actions on Blockchain systems in the insurance space. So now is the best time to start, because you already set the ground for us insurers. So, thank you for this pre-work.
Oliver Volk: Like the last question, I think it's very interesting to see how this is described from a B3i perspective. To be the innovator for different companies, which has the advantage. This is a kind of an outsourced innovation lab system where our companies participate. Where you have the IT knowledge and also have some business cases where you can work on without getting the pressure from your headquarter. But also, to see how AXA is approaching this. They somehow do both. They participate in the B3i innovation lab. On the other side, they created the flight delay insurance, which I agree is something where you do not need a Blockchain to do this. Fully agree, but it's a learning phase. And now that would be interesting to maybe catch up after this discussion.
Frank Desvignes: On my side, listening to you and really looking at the work that we've done to position Blockchain and distributed ledger technology as gaining efficiency within our systems and industry. I would now put all my weight on what growth and what value we can generate from this. And that's why our main idea was to launch a new product. And finally, this product is, at some point, disrupting the value of an existing travel insurance product. So, we're moving forward by looking at where the value is in the Blockchain. And that's why I mentioned cryptocurrency because crypto, or a security token, and the different values that are traded today on the Blockchain. And I believe this is where we are looking for improvements.
Philip Proost: I think what I've learned from the discussion is that the first step is always the hardest when you look back, it's always the most exciting and the most valuable.
KHP: Thank you, Philip, Frank, and Oliver, for sharing your thoughts, perspectives, and insights on Blockchain.
Additional Resources to Dig Deeper
InsurTech Rising International is the global gathering for the Insurtech industry. 450+ insurtech entrepreneurs, incumbents, and investors from across the world driving the insurance digital revolution. The 2019 line up has more C-level speakers than ever before. With 100+ expert speakers from across the globe – including the main insurtech hubs in Europe, Israel, US, and APAC. Hear from AXA, AVIVA, Generali, Mapfre, Zurich, and many more.
Karl Heinz Passler (KHP); https://www.linkedin.com/in/karlheinzpassler
Oliver Volk, Blockchain Enthusiast working at Allianz; https://www.linkedin.com/in/oliver-volk-283b8533/
Frank Desvignes, Global Head of AXA Global Labs; https://www.linkedin.com/in/frankdesvignes/
Phillip Proost, COO at B3i; https://www.linkedin.com/in/philipproost/
In Order of Appearance
B3i - The Blockchain Insurance Industry Initiative; https://b3i.tech/home.html
AXA Global Labs; https://axaindia.com/innovation
Bavarian Blockchain Association; https://www.blockchain-bayern.de/
Lloyds of London; https://en.wikipedia.org/wiki/Lloyd%27s_of_London
History of Lloyds; https://www.lloyds.com/about-lloyds/history
Definition General Ledger: https://en.wikipedia.org/wiki/General_ledger
Distributed Ledger Technology (DLT); https://en.wikipedia.org/wiki/Distributed_ledger
Definition General Ledger; https://en.wikipedia.org/wiki/General_ledger
Do you need a Blockchain? By Karl Wüst Department of Computer Science ETH Zurich and Arthur Gervais Department of Computing Imperial College London; https://eprint.iacr.org/2017/375.pdf
Gartner blockchain hype cycle 2019; https://www.ledgerinsights.com/gartner-blockchain-hype-cycle-2019/
Blockchain may be hyped but it has a place in the insurance industry; https://insureblocks.com/blockchain-may-be-hyped-but-it-has-a-place-in-the-insurance-industry/
Blockchain is about cooperation and collaboration, by Ralf Temporale; https://www.linkedin.com/pulse/blockchain-cooperation-collaboration-ralf-temporale/?articleId=6380395082801123328
Is Collaboration The New Competition? Blockchains Flip Conventional MBA Wisdom, by Alison McCauley; https://www.forbes.com/sites/alisonmccauley/2019/05/23/is-collaboration-the-new-competition-blockchains-flip-conventional-mba-wisdom/
TCP/IP - Internet protocol suite; https://en.wikipedia.org/wiki/Internet_protocol_suite
History of the Internet and commonalities with Blockchain, by Petros Leandros; https://medium.com/datadriveninvestor/history-of-the-internet-and-commonalities-with-blockchain-58472fd0d3a5
Drawing Parallels between TCP/IP and the Blockchain, by Rebecca Campbell; https://blockchain.works-hub.com/learn/Drawing-Parralels-between-TCP-IP-and-the-Blockchain
Blockchain is to Banks <=> TCP/IP is to Telcos, by Bill Tai; https://medium.com/the-mission/blockhain-is-to-banks-tcp-ip-is-to-telcos-73490352cf12
Capitalizing on blockchain in insurance; https://www.insurancejournal.com/research/app/uploads/2018/01/blockchain101.pdf
AXA goes blockchain with fizzy; https://www.axa.com/en/newsroom/news/axa-goes-blockchain-with-fizzy