The next big thing

In November, Allianz Global Corporate & Specialty (AGCS) revealed it had successfully trialled blockchain technology for a global captive insurance programme, including cash transfer between countries.

AGCS’s Allianz Risk Transfer (ART) line of business teamed up with Ernst & Young (EY) and Ginetta to create a blockchain prototype solution for the existing captive insurance programme of an ART client.

This is not Allianz’s first foray into blockchain technology. In June last year, ART successfully tested the use of blockchain technology in transacting a natural catastrophe swap.

Blockchain technology is a protocol built for recording transactions that are secured by cryptography. The technology enables shared databases to support multiple writers whose entries are verified through embedded trust models and form one unified transaction log.

It is intended to serve as an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.

The prototype, created by AGCS, was intended to show how transactions can be accelerated and simplified, including cash transfers between countries, through a convenient user interface and information tracking.

AGCS used blockchain technology to automatically connect all parties involved in the captive insurance programme, sharing a distributed ledger of record transactions and data entries, showing any changes across users in real time.

After addressing annual policy renewals, premium payments and claims submission and settlement, the AGCS’s results showed that blockchain technology can improve the efficiency of corporate insurance transactions internationally as it connects all parties involved in the captive insurance programme, including the captive management, local subsidiaries and the fronting insurer.

According to Alan Cabello, innovation manager of AGCS Central and Eastern Europe, and project manager of the blockchain captive pilot, blockchain and its role in the captive world “allows us to keep track of all information exchanged across multiple parties and in multiple geographies, in real time”.

Cabello explains: “This solves three main pain points in a captive insurance programme: it guarantees data accuracy without the need of multiple validations, it reduces unnecessary waterfall communication threads and it allows us to trigger and track payments through multiple retro structures.”

Speaking directly about this year’s progression in blockchain captives, Cabello states that the technology reached mainstream through one of its applications, bitcoin, which then triggered the interest in banking industry and now insurance.

He says: “This year has indeed been a milestone for blockchain in the insurance industry as we see multiple large players testing and, in some cases, already deploying solutions with this technology. I believe we will see a lot more of this in the near future.”

“Blockchain-type technologies have the potential to improve insurance handling and financial transactions when multiple parties or locations are involved. They provide an opportunity to radically rationalise and reshape inefficient processes by removing the need for data to be updated and revised independently by each party. In the corporate insurance segment, other areas were blockchain technology could be useful are reinsurance-type businesses such as cat bonds, captive management or international insurance programmes.”

Cabello also points out some of the key benefits that blockchain technology brings to the insurance industry, mainly in speed and efficiency.

He suggests that it eliminates printing, copying, and sending of physical documents, eliminates thousands of emails by introducing a structured workflow on a shared ledger, immediately issues and processes payments, clarifies information and perfects traceability of decisions and transactions and eliminates inefficient handover processes among the parties involved.

It also allows money to be transferred directly, instead of having to go through multiple steps in the retrocession chain.

Advantages can also be seen in audit ability, as it inherently makes auditing every step of the process very easy, while relying on the highest level of security.

Cabello explains that instead of relying on exchanging emails and documents over the internet, people are leveraging on technology to deliver simplified processes thus reducing the likelihood of human error significantly.

However, he reveals that there are some negatives to blockchain, relating to the efforts necessary to coordinate and implement such a programme.

Cobella states: “With blockchain a very large initial effort of both the captive and the fronting insurer is required to rethink processes, establish very clear parameters and define the governance by all members of the programme’s value chain.”

The industry is yet to find complete clarity as to how blockchain will shape the captive insurance industry, but Cabello explains that this is the reason AGCS developed the blockchain prototype.

He says: “We can certainly say that blockchain, together with other technologies such as artificial intelligence or big data analytics, will be transformative to the insurance industry within the next few years.”

“This is why AGCS has invested strongly in its innovation efforts and is exploring such opportunities in multiple fronts.”
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