Post on 19-Jan-2017
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?
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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
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The Blockchain Hype
Blockchain is the only new kid on the block
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Blockchain hype
Gartner Hype Cycle for Emerging Technologies 2015
Gartner Hype Cycle for Emerging Technologies 2016
The waves of #insurtech change
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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
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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
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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
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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
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Blockchain 101
What is Blockchain?
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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
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Unlocking opportunities
Blockchain and #insurtech
Six ways Blockchain could disrupt insurance
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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
Six ways Blockchain could disrupt insurance
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Automated claims
Self-executing contracts
Reduced fraud, improved customer experience
Event-triggered smart contracts
Smart contracts cannot fetch external
data on their own
Oraclize as connection between Web
APIs and Dapps
Trustworthiness through cryptographic
proof
Blockchain & insurance
Six ways Blockchain could disrupt insurance
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Automated claims
Self-executing contracts
Reduced fraud, improved customer experience
Event-triggered smart contracts
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
Blockchain & insurance
Six ways Blockchain could disrupt insurance
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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
Blockchain & insurance
Six ways Blockchain could disrupt insurance
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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
Blockchain & insurance
Six ways Blockchain could disrupt insurance
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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
Blockchain & insurance
Six ways Blockchain could disrupt insurance
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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
Blockchain & insurance
Six ways Blockchain could disrupt insurance
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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
Blockchain & insurance
To use or not to use Blockchain
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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?
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Questions?
Magda Ramada
Magda.Ramada@willistowerswatson.com
@MagdaRamada Magdalena
@WTWrisk Ramada Sarasola, PhD
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or everything else you wanted to know and didn’t dare to ask
Appendix
What is Blockchain? – going into more detail
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• 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
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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
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• 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