Reinsurance blockchain prototype launched by B3i

At the Monte Carlo Reinsurance Rendez-vous event a working prototype of a blockchain powered reinsurance transaction platform was launched by the group of fifteen global insurers and reinsurers that make up the B3i (Blockchain Insurance Industry Initiative).

The distributed ledger system built on a blockchain technology was demoed to an audience in Monte Carlo, with a fully functional reinsurance placement platform on display. The prototype features a property catastrophe excess-of-loss reinsurance transaction stored as a smart contract on a private, cryptographically secure blockchain.

Paul Meeusen of B3i commented on the launch; “I am really excited about our launch. Over the past four months, a dedicated, combined team drawn from B3i member firms has produced a working prototype covering the core functionalities required to enable a distributed smart contract management system for Property Cat XoL contracts. The deployment architecture is already close to a production-ready environment and the team is preparing for feature enhancements of the prototype and a first deployment into production in 2018.”

The B3i members have been working to develop and exploit the potential of blockchain applications for the reinsurance industry, aiming to create what they describe as, “An efficient world-wide industry platform for market participants to more easily cede, handle and trade risks.”

Using state-of-the-art distributed ledger technology, the prototype reinsurance platform allows for secure, confidential and efficient transactions in a blockchain network, with the focus currently being on handling reinsurance contracts.

The focus is set to widen though, with the entire value-chain of the insurance and risk transfer industry being explored by the B3i group.

B3i says that an industry business case has been built for the distributed ledger platform across the whole value chain, with the firms involved concluding that a productivity gain of up to 30% is achievable.

B3i’s Sylvain De Crom said that, “all parties involved will gain from this efficiency.”

Lower administration costs will be possible for all insurers, reinsurance and brokers, enabling them to provide more attractive rates and fees to clients in the future.

Ultimately, the added efficiency of utilising a technology platform for placing and trading in insurance and reinsurance risks can reduce the cost-base of market participants.

However, we’d also add that it can disrupt the positions in the value-chain that participants occupy currently, with lines set to increasingly blur between brokers and underwriters in the future as technology is embraced.

B3i aims to launch a market beta-testing program for the reinsurance blockchain prototype, beginning October 2017, with insurers, brokers and reinsurers welcome to join the testing program.

The platform has been created along with IBM using the Hyperledger Fabric blockchain technology variant from the Linux Foundation.

What’s interesting to us about the B3i blockchain platform is that it may be able to more efficiently syndicate risks, including to the capital markets and insurance-linked securities (ILS) investors and funds. That could make risk placement, trading and syndication more efficient for everyone.

The B3i is far from the only initiative looking to achieve these goals, a number of other start-ups and industry initiatives are targeting the creation of re/insurance risk trading and exchange like platforms. It’s going to be interesting to see how the various platforms gain traction and where industry participants find trading simple, most efficient, transparent and also independent (which is important).

B3i says that its current governance and membership of 15 companies (Achmea, Aegon, Ageas, Allianz, Generali, Hannover Re, Liberty Mutual, Munich Re, RGA, SCOR, Sompo Japan Nipponkoa Insurance, Swiss Re, Tokio Marine Holdings, XL Catlin and Zurich Insurance Group) will remain in place until the end of the year.

After that the B3i will assess whether it needs to create a more permanent operation within a legal entity in 2018.

There is a long way to go before such platforms are used in the wild, so to speak, but the fact so many are recognising both the potential of technology and the need for efficiency in the industry is encouraging for all market participants, both traditional and alternative.

The capital market investors in ILS and collateralized reinsurance stand to benefit from such efforts as much as the traditional players, with efficiency added to all transactions and trading and the choice of capacity not important to the execution of the deal.

It’s also rumoured that the B3i has as one of its goals better standardisation of risk trading of insurance securities, so that could apply to catastrophe bonds and other ILS. The platform could likely be used for smart contract bonds and also for distribution to investors or markets, potentially making ILS trading much more efficient in the process.

The ultimate goal will be more efficient transactions, lower costs for market participants and more affordable insurance and reinsurance protection for cedents, all beneficial to society and helping to increase uptake of risk protection in the long-run.