Today B3i the blockchain insurance startup owned by major insurers, announced the launch of its first product. Version one of its Property Catastrophe Excess of Loss Reinsurance (CAT XL) product is live on the Corda Network.
Given the renewal cycle at year-end, this is a relatively soft launch. CEO John Carolin explained: “Looking ahead, the team are working with our customers in preparation for a live parallel run for year-end renewals whilst working towards subsequent releases and a production-ready version in Q4 2019. ”
Like many enterprise blockchains, B3i aims to reduce friction in business processes to make insurance “faster, cheaper, and better”. It minimizes manual processes so that each party to a contract doesn’t have to re-key information. That also reduces the risk of mistakes. Plus there’s the transparency enabled by sharing a common view of the current contract state.
But what is the financial benefit? Head of Product, Sylvain de Crom responded to such a question at the recent Blockchain for Insurance event. He said that research was done in 2016/2017 and only looked at admin savings for insurers and reinsurers. The estimate was a savings of one-third of the admin expenses. That doesn’t take into account savings elsewhere such as risk departments or admin savings for brokers. A member of the audience commented that the anecdotal saving for brokers is up to 30% of admin costs.
B3i first launched as a consortium in 2016 and delivered a prototype in 2017. Last year it incorporated in Switzerland, closed its first funding, and switched technology from Hyperledger Fabric to R3’s Corda. This year it completed another round of investment ($22m) and has a new CEO. The company is backed by 16 insurers and reinsurers* as well as Japanese fintech investor SBI.
De Crom elaborated on the journey. He commented that prototypes of themselves are useless apart from the fact that it shows what you can do. He talked about moving from prototype to production and said that you think: “‘We already have a prototype, how hard can that be?’ Well, it’s very hard.”
Apart from the switch in technology, there’s also been a broadening of emphasis to include brokers which were less involved initially.
The role of brokers
In the early days of B3i, the focus was on the cedants (insurers) and reinsurers. Notably three months ago Aon and Guy Carpenter, the two largest reinsurance brokers, partnered with competing insurance blockchain RiskStream (formerly RiskBlock).
Talking to Ledger Insights, de Crom emphasized the critical role of brokers in the process. He pointed to an underwriting workshop earlier in the year where they made useful contacts with brokers with strong client management experience. “It’s all great that it works for your cedants and your reinsurers, but we already knew that. So getting those brokers more involved was for me a very good thing,” said de Crom.
B3i is a network not a product
While today’s announcement is about the launch of its first product, B3i is really a network company that happens to have a product. They’ve built what they call the Fluidity platform, which in some ways is like the iPhone IOS or Android. On top of that, it’s running the CAT XL product and commercial solutions which will follow.
The advantage is that not every solution has to start from scratch. “If you have reusable components, you only need to add to those components and select the ones you need,” explained de Crom. “It’s still a lot of work. [But] it’s less work than building the whole thing from scratch because that takes years.”
The B3i executive asserted that if there are too many blockchain networks, then clients have to run a node for every network which will be inconvenient. That’s not to mention the added integration required. “What’s the best thing for everybody is if there are a few big networks where we have big clients using only a few nodes,” said de Crom.
With that in mind, Fluidity is a toolset that is starting to be offered to others so they can build on top of it. And they also want to appeal to technology companies that already have their own blockchain solutions and don’t want to rebuild their technology on Fluidity. For those companies, being able to offer solutions to B3i’s customer base is attractive. B3i plans to enable access for them via a single sign-on.
What does the product do?
Right now, the CAT XL solution purely focuses on the placement of the reinsurance contract. It doesn’t yet handle accounting, payments or claims. And as a first step, rather than requiring integration with participant systems, the data is entered via a web browser.
But being able to share both the contract, associated files and the negotiation process is a big step.
Critically, there’s integrated messaging. “We need to make sure all the communications are in this process as well,” said de Crom. “Relying on email is not going to do. Because then you have a side conversation here. Later on, you have a disagreement, and you say ‘well we meant this, Your Honor'”.
But not every conversation is shared with all parties to the contract. “The broker is there in the middle. The brokers work best by having private discussions,” said de Crom. “Not all the info needs to go all the way.”
And the workflow process marries the messages and the files with the contract. It avoids the typical scenario of searching through emails and excel spreadsheets for the correct version of the agreement.
Smart contracts play an important role in the process. The final insurance contract is often significantly different from the original. Every reinsurer has to calculate their cut along the way, and that’s usually done in spreadsheets. But smart contracts can do that for you.
Conditional signings are another good application of smart contracts. Say an underwriter agrees to take on 20% of the risk, but the broker and cedant need 25% and fail to find the other 5%. In that case, there can be a condition in the smart contract, so the underwriter either agrees to 25% or the deal does not proceed.
Right now, the documents that are attached to the CAT XL contract are treated as unstructured data. There’s no extraction of usable information. But as the solution evolves to handle automated claims or automated premium calculations, the documents are likely to become more structured.
That’s one specific example. Talking about the insurance industry as a whole “we sit on a ton of data,” said de Crom. “And we don’t do anything with it.” He spoke about all the excel files that get thrown away. Like the example above, business processes will increasingly require data to become more structured. And structured data enables AI, machine learning and predictive analytics.
That in turn addresses the frequent question with enterprise blockchain: “What’s in it for the customer?” By providing predictive analytics to customers, they can alter their behavior if they choose to. But also the wholesale efficiencies across the market delivered by blockchain will eventually benefit consumers.
* Apart from SBI the 16 insurers and reinsurer investors are Achmea, Aegon, Ageas, Allianz, AXA, Deutsche Rück, Generali, Hannover Re, Liberty Mutual, Mapfre Re, Munich Re, SCOR, Swiss Re, Tokio Marine, VIG Re and Zurich Insurance Group.