The Asia head of enterprise blockchain technology company R3 talks about the use of blockchain in insurance
Blockchain is revolutionising the insurance industry. In this interview, Unravel speaks with R3’s Asia-Pacific head Amit Ghosh, and strategy and operations manager Harrison Tan about the state of the insurance industry in Asia, how blockchain is helping address pain points in the industry and making it more efficient, and whether we are seeing perceptions of blockchain change more broadly, owing to COVID-19.
Unravel: What are the key challenges that insurers in Asia-Pacific face today?
Amit Ghosh: While Asia-Pacific insurers have been experiencing rapid topline growth over the past few years, operating expenses and IT costs still comprise a significant portion of many insurers’ cost bases. A recent Ernst & Young report found that Asia-Pacific general insurers’ expense ratios increased from 31% in 2013 to 34% in 2018.
Due to the pandemic, insurance operations have been severely impacted by the combination of increased service requests and disruptions to third-party services. The pandemic has compounded the necessities of cost-effectiveness, profit maximisation and digitisation for insurers, with profit margins squeezed due to a fall in consumer demand, an increase in claim volumes and a broader shift to digital channels.
Unravel: How are Asia-Pacific insurers reacting to these increased cost pressures?
Mr Ghosh: As insurance providers face pressure for greater cost efficiency, they are increasingly looking to digitisation to realise cost savings.
A 2020 survey by Ernst & Young highlighted that four of the five most pronounced insurance trends within the region related to digitisation – including increased pressure for cost efficiency, threats and opportunities from emerging and disruptive technologies, the digitisation of their salesforce and the emergence of partner or competitive insurtech companies.
Within this broader digitisation push, both insurers and insurtechs have been actively leading and participating in blockchain initiatives to realise such benefits.
Unravel: We’ve heard a lot about blockchain in financial services. Can you tell us how blockchain is being used in the insurance space today?
Mr Ghosh: Blockchain has been adopted by multiple insurers worldwide to enhance legacy processes and generate efficiencies, thereby reducing the operational effort and costs required from insurers.
Perhaps one of the most well-known use cases in the insurance industry to date is that of B3i, a Europe-based reinsurance consortium with over 20 member insurers and reinsurers.
The reinsurance value chain is complicated and convoluted, with multiple brokers, insurers and reinsurers interacting with each other and exchanging information. As a result, even a simple reinsurance contract placement requires significant manual coordination and processing across multiple parties, resulting in high operational costs.
Blockchain’s decentralised nature also allows each entity to ensure ownership over their data, without necessarily requiring oversight or aggregation by a central party or authority.
Utilising R3’s Corda blockchain, B3i has successfully built and deployed its first Distributed Ledger Technology (DLT) solution for the reinsurance market. Focused on Catastrophe Excess of Loss, the solution enables all participants in the reinsurance value chain to access a single version of the truth, automating the end-to-end lifecycle of a reinsurance treaty. What this means is that all insurers and reinsurers have real-time access to the same set of facts across their own servers, and any changes to the contract are updated to all parties in real time. Blockchain’s decentralised nature also allows each entity to ensure ownership over their data, without necessarily requiring oversight or aggregation by a central party or authority.
As of February 2020, B3i customers have completed over 30 contract placements using this solution, with the vast majority of customers citing workflow efficiencies, reduced admin errors and reduced operational risks as key benefits of the solution.
Unravel: What about emerging markets? Can you give us another use-case example?
Harrison Tan: Bharti AXA in India recently concluded a successful proof-of-concept (POC) to reduce motor insurance claim management costs utilising Corda. Bharti AXA handles over 20,000 motor claims per month, a heavily manual and time-consuming process that involves a high amount of paperwork, phone calls and emails with partner workshops and policyholders. The traditional claims process was resulting in high costs for the insurer, as well as poor customer experience for its policyholders.
Using Corda, Bharti AXA worked with Ledgertech, a blockchain tech vendor, to build a motor insurance solution that leveraged both Blockchain and AI. This solution enables customers to send their proof of loss digitally to the insurer, while data is shared seamlessly across the blockchain between Bharti AXA and its partner workshops.
As a result of this solution, Bharti AXA reported a reduction of overall claims management costs by up to 20%, as well as a reduction in claims processing turnaround time from hours or days to minutes. As we speak, Bharti AXA is preparing to deploy the solution into production.
Unravel: Apart from generating greater operational efficiencies, are there any other areas where blockchain is being utilised today?
Mr Tan: Yes, blockchain solutions have also been adopted by the insurance industry to combat insurance fraud.
In Hong Kong, it is being used by the Hong Kong Federation of Insurers (HKFI) to combat motor insurance fraud. Historically, criminal syndicates had targeted motorists in Hong Kong by posing as legitimate insurance agents and offering forged motor insurance cover notes to unsuspecting motorists. When trying to make a claim on their motor insurance, these victims of fraud would discover that their motor insurance cover notes were forged, and therefore were not able to claim on their losses. In 2016, the Hong Kong Police discovered over 1,000 forged cover notes related to such types of scams.
To combat this issue, the HKFI worked with a technology partner to build a solution on Corda. Called MIDAS, this solution allows insurers to verify the authenticity of all motor insurance cover notes issued by insurance agents over blockchain in real-time. Motorists are also able to verify the authenticity of their cover notes easily by scanning a QR code at the Hong Kong Transport Department’s offices.
This solution has been live in Hong Kong since December 2018, and has over 20 major insurers participating on the blockchain network.
Unravel: What other potential areas can blockchain be applied to, in this space?
Mr Tan: Blockchain has allowed insurers to offer new product lines to consumers, as in the case of parametric insurance. Enabled by the concept of smart contracts, an action is automatically triggered with computer code based off a predetermined event.
As a result, insurers can enable the automatic processing and pay-out of claims based off certain trigger events, such as a flight delays, natural disasters, or even a policyholder’s death (for the purposes of life insurance). With automated claims processing, insurers reduce their reliance on costly manual processes, creating greater cost efficiencies while enhancing customer experience for their policyholders.
Blockchain can also be applied to areas such as bancassurance and microinsurance, where multiple participants across the value chain are able to seamlessly share data in real-time, eliminating the need for manual processing and reconciliation.
Within bancassurance, banks can leverage the seamless sharing of data with insurers, and will not require the duplication of information or lengthy onboarding processes to provide customers with insurance products. Updates to customer information at the bank level can also flow seamlessly to insurers, leading to an enhanced customer experience and greater revenue potential for both banks and insurers.
Microinsurance is also being made economically viable through the use of blockchain technology. Historically, legacy placement, underwriting and claims processes have made microinsurance unfeasible, as associated processing costs far outweigh the small premiums of such policies. These issues were often exasperated by complex value chains, with agents, cooperatives and credit unions sitting between the insurer and the customer.
Using blockchain, these processes can be automated end-to-end across the entire value chain, enabling real-time processing of microinsurance policies at viable costs – resulting in better customer experience and greater consumer accessibility to insurance.
Unravel: Are we seeing a change in perception towards/ acceptance of blockchain technology owing to the pandemic?
Mr Ghosh: COVID-19 has highlighted the inefficiencies of legacy paper-based processes, highlighting the urgency for businesses to evolve to meet the demands of a new digital-first normal.
At the onset of the global pandemic, organisations quickly found alternative ways to communicate and conduct business, with web conferencing and communication software such as Zoom and Slack replacing traditional forms of in-person communication.
In a similar vein, we observe that businesses have rapidly sought solutions for sharing data between entities, as the shortcomings of legacy systems and manual processes have become brutally exposed. COVID-19 has also re-emphasised the importance of data transparency, provenance, and access, especially within global trade, where businesses are increasingly looking to diversify their previously concentrated supply chains.
COVID-19 has highlighted the inefficiencies of legacy paper-based processes, highlighting the urgency for businesses to evolve to meet the demands of a new digital-first normal.
As a result, we have observed a greater overall urgency by businesses to accelerate their digital transformation agendas, in order to both generate greater cost efficiencies in an unstable economic climate, and to cope with the fundamental shift towards digital interactions and processes. This has translated to an overall increase in interest and adoption of blockchain solutions across multiple industries globally; over the past few months, we have seen an unprecedented number of businesses and corporates adopting and deploying blockchain solutions.