Global reinsurance firm Swiss Re said that the major players are aware of the need for standards in blockchain related technology initiatives and hence the Blockchain Insurance Industry Initiative (B3i) involving some of the world’s largest re/insurers is important.
Kurt Karl, Swiss Re’s Chief Economist and Global Head of the Swiss Re Economic Research & Consulting unit, said that the reinsurer had reached out to fellow global reinsurance firm Munich Re, as both are aware of the need for standards in blockchain development in order to support the traditional syndicated reinsurance market paradigm.
Reinsurance renewals commonly involve upwards of 20 reinsurers signing on a program, Karl explained this morning during an economic briefing, hence the industry needs to develop standards that enable reinsurers to benefit from the use of the blockchain and the efficiency it can offer.
With so many insurance technology (insurtech) initiatives underway around the reinsurance sector there is a growing concern that we could end up with competing standards.
The re/insurance industry has witnessed this before, with competing XML standards resulting in costly implementations and projects which ultimately failed.
Global reinsurance players like Swiss Re and Munich Re are aware of the need to ensure compatibility, as the market evolves with the help of technologies such as the blockchain. This has led to the creation of B3i and encouraged competitors such as the two largest reinsurance companies to work together.
Karl said that with reinsurance programs often involving upwards of 20 reinsurers on a panel, “using the blockchain should make it more efficient” ultimately resulting in a cost saving opportunity for the industry and benefiting the customer as re/insurance prices should come down.
Currently the B3i initiative is still at the proof of concept stage, but with reinsurers looking for cost savings and efficiencies, the expense ratio is only going to get more important while the pressure on prices and returns remains, the standardisation of the reinsurance program renewal (paperwork, processes etc) using blockchain technology could be a really positive step forwards for the industry.
Of course, we’d hasten to add, the insurance-linked securities (ILS) market also stands to benefit from the development of standards around reinsurance renewals using the blockchain, as ILS fund managers will also be able to benefit from increased efficiency and the use of any platforms that move into production and gain market-wide acceptance.
We’d also add that any B3i initiative is unlikely to disrupt the value-chain between risk and capital considerably, unlike some other insurtech start-ups that want to create direct mechanisms for insurance risk to be backed by capital market investors.
However any enhancement to the process of signing onto reinsurance program renewals will enable the ILS funds to further increase the efficiency and lower the cost of their risk capital, so these trends or initiatives will become important as they near fruition.
We’re some way off that happening right now, even the most advanced blockchain insurtech start-ups are still facing issues related to the performance and scalability of the technology.
The banking world of fintech could provide a warning sign as well, with competing initiatives and technologies meaning standards are diverging in some key areas such as settlement. It’s important that reinsurance, a market built on relationships, works to avoid another divergence of technology standards.
But these problems will be overcome in time, blockchain remains a very young technology, and the promises of efficiency and cost-saving are clearly enticing enough to encourage direct competitors to work together for the benefit of the industry.