Blockchain, or distributed ledger technology, was “made for reinsurance,” according to PwC, and could represent a cost saving opportunity of up to $10 billion as companies look to increase efficiency and understand what the development of insurtech means for their business.
With technology poised to disrupt and evolve industries across the world, including the insurance and reinsurance marketplace, insurtech or insurance technology including Blockchain, is being discussed at the highest levels of leading re/insurers becoming one of the hottest topics for the global insurance and reinsurance industry.
Consultancy PwC has released a report that explores the potential for Blockchain to improve efficiency and reduce costs for reinsurers, claiming that the reinsurance industry has an opportunity to realise a substantial cost saving opportunity via the use of distributed ledger technology.
“Reinsurers are in line to build some of the biggest blockchain applications outside the payments sector, which will enhance risk understanding and open up a $5 – 10 billion cost saving opportunity through faster, more efficient and more accurate placement, claims settlement and compliance checks such as sanctions,” said PwC.
We’ve discussed the potential of Blockchain technology to be an efficient but disruptive force in the global re/insurance industry before at Artemis and, while the development of such technology within the reinsurance marketplace is still in its infancy, PwC has highlighted ways in which it could improve the efficiency of global reinsurance business.
“Blockchain technology is still a new and uncertain area for reinsurers but those who are able to quickly build, assess and refine their applications will differentiate themselves. At a time when companies are searching for cost savings, the potential of Blockchain to vastly improve efficiency and accuracy cannot be ignored,” said Stephen O’Hearn, PwC’s Global insurance leader.
Within the reinsurance sector PwC explains that Blockchain tech has the potential to improve processing by removing task duplication and multiple re-keying of data, which can result in human error.
Blockchain could also be useful with regards to new business, supporting entry into new markets and products, something that was explored by Nephila and Allianz via a pilot scheme utilizing a catastrophe swap transaction.
The transparency of the reinsurance sector and contracts could also be greatly improved with the adoption of Blockchain technology, says PwC. With all the underlying risks on a Blockchain, reinsurers are better equipped to more accurately identify and quantify risks that are to be covered by reinsurance protection.
“Effectively information on the underlying risks can be aggregated onto a reinsurance blockchain so all information, documents and transactions flow into the contract,” explained PwC.
Typically, reinsurance expense ratios are 5% – 10% of premiums, but by simplifying reconciliation and multiple data entries, reinsurers could see up to 25% of expenses from the sector removed as a result of the use of Blockchain tech, which, PwC says translates to savings of up to $10 billion.
“Blockchain technology can be deployed across the reinsurance and retrocessional value chain. A risk can be ceded/retroceded using a blockchain application specifically designed to process treaties, notify all parties and then process premium and commission payments. The technology could also be applied to speed up claims processing and verification,” said PwC.
As a whole, insurtech and Blockchain are only just starting to be understood and discussed in a more meaningful manner, but it’s clear from market analysis that both hold great potential for improving the efficiency of the risk transfer landscape.
“Behind all the hype surrounding blockchain is a straightforward opportunity to cut costs and improve client satisfaction within reinsurance,” said PwC.
Of course, while blockchain technology could deliver cost savings that are much-needed in reinsurance right now, as efficiency and cost-of-capital has become key in the softened market, it also represents the chance to lower the cost of ILS capital even further as well.
Additionally, while as much as $10 billion could be saved in global reinsurance markets, the potential to earn new revenues is also a key reason to embrace insurtech and technologies such as the blockchain, with innovative technologies likely to result in growing opportunities for re/insurers, ILS players and also start-ups from outside the industry.