B3i’s first reinsurance product has already been market tested and is scheduled for launch in Q4 2018, so they need a structure and team to support that, hence the imminent incorporation. There are no signs of friction within B3i, but the incorporation stage was a critical juncture for the R3 CEV banking consortium.
R3 did a $107 million fundraising despite some significant players dropping out before incorporation: Goldman Sachs, JP Morgan, Morgan Stanley and Santander. In the case of Goldman Sachs, it was rumored that they weren’t happy being an equal shareholder and wanted more say. But all of them were also involved with other blockchain ventures, especially Digital Asset Holdings which uses Hyperledger rather than R3’s Corda technology.
For B3i, IBM is the solution provider, and the technology is Hyperledger Fabric. Like everyone in the sector, it is constantly monitoring all existing and emerging platforms.
Multiple insurance startups are targeting the same area as B3i, but none are in the heavyweight league of Digital Asset Holdings, the R3 competitor. And none are as far advanced as B3i, though it needs to protect its lead. Beyond startups, there’s another substantial consortium, the US-based RiskBlock.
Three insurers and two reinsurers started B3i in October 2016. It expanded to 15 founding members, and later another 23 members who joined in the 2017 testing phase, including brokers.
The structure was based on a Memorandum of Understanding (MOU) between the founding members but expired at the end of 2017. So they had to decide whether to extend the MOU or incorporate.
The original founding members will become the initial shareholders and transfer their intellectual property into the Zurich based for-profit company. There will be a CEO and five-person management team drawn from the consortium. The second quarter will see an invitation-only funding round which won’t be limited to the founders.
30% cost savings
The first project is a reinsurance contract for Excess of Loss (XOL). If there’s a hurricane which the XOL covers, all the reinsurer needs to know is there was a loss that was more than the excess and there was a hurricane. The smart contract can calculate the amount.
The group intentionally chose a simple use case. It replaces a manual process with a lot of friction. “It’s quite tortuous and can take up to 60 – 90 days to conclude the contract,” said B3i’s Ken Markle. He estimated they could save up to 30% of administration costs.
It makes sense to build on the first project with further reinsurance. Given the mix of members, after additional reinsurance contracts, they intend to move onto commercial lines rapidly, and then life and health.
But first, they have to go live in Q4, targeting renewal cycles starting 1 January 2019.
Given that the majority of new shareholders will be users and there will be no shortage of cash, many startups might be envious.
But conventional startups have an advantage. They can move quickly, compared to B3i with 15 decision makers, which inevitably slows them down.
With multiple startups focused on insurance blockchain plus the US Riskblock consortium, it will be fascinating to see how it pans out in two to three years.