for insurers blockchain is the new black – navigating the hype and understanding threats and...

For insurers Blockchain is the new black

© 2016 Willis Towers Watson. All rights reserved.

Navigating the hype and understanding threats and opportunities

September 2016

Dr. Magdalena Ramada (WTW Research and Innovation Center)

Customer Centricity

What is the blockchain?

© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis

Towers Watson client use only.2

Trying to keep a bird’s eye perspective

Bitcoin

Distributed Ledger Tech

No reconciliation

End of counterparty risk

Digital assets

Smart Contracts

Source: John Godfrey Saxe,Based on ancient Indian fable

© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only. 3

The Blockchain Hype

Blockchain is the only new kid on the block


Blockchain hype

Gartner Hype Cycle for Emerging Technologies 2015

Gartner Hype Cycle for Emerging Technologies 2016

The waves of #insurtech change


Globalization

Mobile technology

Medical advances

Integration with social

media

In progress

Big data

Predictive analytics

Internet of Things

Blockchain

P2P

Comparison

platforms

Automation

Artificial

Intelligence

Instantaneous

billing

Real-time

adaptive

pricing based

on changing

customer

needs and

shared data

Per-use and

personalized

products

Early adoption

The future?

Ongoing

Developing

Disruptive

Blockchain hype

The take-off of #blockchain and #insurtech


Raised in 9 blockchain investment rounds by investors like AXA Ventures, Goldman Sachs, J.P. Morgan and Santander InnoVentures

Invested in

#blockchain

start-ups in 2015

Total all-time investments in blockchain technology

$430M $1.1B 42Systemically important financial institutions are part of R3CEV consortium to do R&D on blockchain for #fintech

$135.3M 1/3Chasing low-hanging fruit: incremental innovation through better processes and efficiency

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

311KTweets per hour on #blockchain,

of which 19% linked to #fintech

and 7% linked to #insurtech

Blockchain hype

BLOCKCHAIN


July 2015 – July 2016

IN THE MEDIA

48

304

583634

712

1032

904

1152

1369 1383

20712023

1454

0

500

1000

1500

2000

2500

JUL 15 AUG 15 SEP 15 OCT 15 NOV 15 DEC 15 JAN 16 FEB 16 MAR 16 APR 16 MAY 16 JUN 16 JUL 16

BLOCKCHAIN

BLOCKCHAIN+FINTECH

BLOCKCHAIN+INSURTECH

Blockchain hype

BLOCKCHAIN


July 2015 – July 2016

IN THE MEDIA

INSURTECH

BLOCKCHAIN+INSURTECH

0 00

0 1 0 1 5 6 2 7 6 910

12 5 5 6 8

28

6155 56

124

98

0

20

40

60

80

100

120

140

JUL15

AUG15

SEP15

OCT15

NOV15

DEC15

JAN16

FEB16

MAR16

APR16

MAY16

JUN16

JUL16

BLOCKCHAIN+FINTECH

11 39 90 112 211 235 190 248 409 414 415 493 357959

6331

8623 8692

73477994

83899055

9965 994310389 10346

9986

0

2000

4000

6000

8000

10000

12000

JUL15

AUG15

SEP15

OCT15

NOV15

DEC15

JAN16

FEB16

MAR16

APR16

MAY16

JUN16

JUL16

FINTECH

459INSURTECH

108,019FINTECH

PAST 12 MONTHS TOTAL

PAST 12 MONTHS TOTAL

Blockchain hype


Blockchain 101

What is Blockchain?


It is a shared distributed (digital) ledger technology

Blockchain ??

Centralized Decentralized

Distributed

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


Unlocking opportunities

Blockchain and #insurtech

Six ways Blockchain could disrupt insurance


Blockchain & insurance

Automated claims

Self-executing contracts

Reduced fraud, improved customer experience

Event-triggered smart contracts

Decentralized, fully digital, safer markets

Less human error, no data duplication

Less processing delays, transaction costs

Increasedback-end efficiency

Decentralized carrier consortium

Automatic identity validation

Self-executed transactions

No need of trusted partners

Disintermediation

Real-time, individualized

Automatic data sharing for analytics and pricing

Risk transparency through connected economy

Better pricing and risk assessment

P2P, shared economy, spot-insurance, hybrids

More transparency, less costs

Social media and crowdsourced oracles

New types of insurance

Solves many microinsurance challenges

Automatic construction of distributed database

Better prices through simplicity and efficiency

Reaching the underserved



Automated claims




Smart contracts cannot fetch external

data on their own

Oraclize as connection between Web

APIs and Dapps

Trustworthiness through cryptographic

proof




Automated claims




2013 2014

2015

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

A powerful trio for insurance: IoT, Big Data and SmartContracts




Decentralized, fully digital, safer markets

Less human error, no data duplication

Less processing delays, transaction costs

Increasedback-end efficiency

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

“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




Decentralized carrier consortium

Automatic identity validation

Self-executed transactions

No need of trusted partners

Disintermediation

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




Real-time, individualized

Automatic data sharing for analytics and pricing

Risk transparency through connected economy

Better pricing and risk assessment

From segmentation to personalization

On-demand insurance for any product, any

time

Price changing real-time according to geo-

location, 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




P2P, shared economy, spot-insurance, hybrids

More transparency, less costs

Social media and crowdsourced oracles

New types of insurance

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




Solves many microinsurance challenges

Automatic construction of distributed database

Better prices through simplicity and efficiency

Reaching the underserved

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


To use or not to use Blockchain


Public

BC

Control

neededTransactions

need to be

Database

?

Shared

written

access?

Trusted

writers?

Trusted

3rd party

wanted?

Yes

Yes

Yes

No Blockchain

No

No

Conflict

of

interest?

No

No

Yes

Yes

No

Use Blockchain

Yes

No

Consensus?

Private

Hybrid

BC

Private

BC

Public

Intra-firm

Inter-firm

WHAT NOW?

21© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

Questions?

Magda Ramada

[email protected]

@MagdaRamada Magdalena

@WTWrisk Ramada Sarasola, PhD


or everything else you wanted to know and didn’t dare to ask

Appendix

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 2016

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 pre-

established 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 2016

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

Blockchain ??

• Hashgraph

consensus and

the Gossip

protocol

• Consensus can

be generated in

various ways

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