The implications of blockchain for the insurance industry - Eurapco Peer Seminar - Unchaining the potential of Blockchain

Blockchain Peer Seminar

Unchaining the potential of Blockchain for Eurapco Partners

The implications of blockchainfor the insurance industry& the current maturity

Vidal CHRIQUI @vidal007

#Eurapco#BlockchainSeminar2016

Turin, 13th of september 2016

Disclaimer• This talk is assuming a basic understanding of blockchain general principles• No public/private blockchain debate. Still most usecases described can be handled with public blockchain• The duration of the talk does not allow to cover all the possible use cases

Introduction – The paradigm shift

The general implications of blockchain

Toward the end of the middleman ? • Bitcoin Blockchain made possible banking services without banks• More generally, blockchain makes possible to transact/work without a middleman without trusting the other party – But still trusting the protocol

A high level of automation - Smartcontracts• Smart-Contract are piece of software code that Run on the blockchain, a highly secure runtime Can execute money/asset ownership transfer depending on some conditions• Automate some (piece of) contracts

Transparency• Eliminate imbalance of information amongst participants• Improves the capability of regulators (almost real monitoring) and reduces the regulatory costs• BUT a real challenge when competitive advantage comes from information asymetry

A secure & low-cost technology• Security By design – Cryptography, Game Theory, Software Proven by experience : Bitcoin Market cap is implicitly a 10B$ security bounty never rewarded• Low cost transaction

Viable micropayments• The ability to handle micro-payments with acceptable fees• Micropayment + automation unlock new scenarios Machine to machine transactions, Small rewards for users or partners for each small action, etc …

The end-user is responsible of his identity• Transacting without middle-man brings the great responsability of managing its own identity• Many solution involving : Hardware wallets, Software wallet, Online Wallet and sometimes third party• Digital Identity remains a critical enabler for any blockchain application

The impact on Insurance Industry

The implications of blockchain for Insurance

Blockchain as global registry - Fraud detection & Authenticity checks• Blockchain can be used as a global distributed registry (Property & casualty) which allows easier

verification for authenticity, ownership, date/time of purchase, etc..• Exemple : Diamond Verification (EverLedger), national car registry ….

Customer engagment & personnal data• Blockchain for verifying proofs of personal data• User share his data only ONCE and the data remains under his control• KYC use case Only 1 verification inter-product, inter-divisional, inter-location, inter-subsidiary, inter-consortium

blockchainblockchain

Insur

A

Insur

B

Insur

C

Partner

A

Bank

Partner

B

Elect.

Customer engagement & Loyalty programs• Blockchain for building an universal loyalty program which allow users to share/trade their fidelity points to use their fidelity points as money at (selected) partners

Blockchain for marketplace back-office efficiency• Inter-Insurers blockchain can bring many benefits including Exact redudant and secure data Reduced processing delays, reduced transaction costs

Automation via SmartContract• Automation of the claim process – from submission to approval & payment• Reduction of fraudulent claims• Eligible for micro-insurance products like crop-insurance or weather-based insurance

Blockchain for embracing the IoT market• Automation of damage detection, triggering the repair process & payment• Automatic checking of the insurance policies or warranties• Valid for cars, smart home, appliances and all IoT devices

Source : IBM Democray - ADEPT

Peer to Peer Assurance/Mutual – Total disintermediation• Community driven• Cash Back bonus at the end of a claimless period• Easier and more affordable for customers

Blockchain impacts on Insurance – Use Cases overview• The blockchain can be used to optimize existing product or model to enable new products and business models

Use Case InsureTech

example

Existing

products

or

models

Identity Management & KYC Tradle.io

Ledger of insured items Everledger

Certification of complaints history RootStock

Contract signing & MicroInsurance SafeShare

Management of sensitive (medical) data BitProof / SecuCoin

New

products

or

models

Automatic settlement of claims (SmartContracts) InsurEth

Peer to Peer Insurance FriendSurance /

DynamisApp

Crypto Mutual (SmartContract) WeKeep

State of the Art

The limitations ofthe current technology

Scalability• Number of transactions per second limited ( 5 to 7 tx/s in Bitcoin)• Yet, this topic has a many solutions that are currently under implementation SideChains (Blockstream) Lightning Network (Bitcoin) Raiden (Ethereum)

Speed• High security in a P2P network brings latency and the necessity of a blockchain & confirmation time In bitcoin, Block time is 10 minutes & confirmation time is 60 minutes• Most solutions are using an off-chain approach (which is not blocking for most use cases)

Energy Efficiency & Proof of Work• All verifications are done by all the nodes of the network which make a lot of energy consumed• Yet, the cost per transaction seems acceptable • Many solutions possible as the Proof of Stake algorithm OR simpler algorithm in private blockchain

Vulnerability to the « 51% attack »• The 51% attack can disturb the consensus outpout• Even though the vulnerability is too expensive to be realistic and can not alter most of the data, the trust

in the system can still be altered

51%

State of the Art

Some challenges to come for blockchain

Legal and regulatory framework• Not clear enough regulation about cryptocurrencies the strongness of proof in front of a court The legal responsible (accountable) in case of any issue

User experience• Blockchain user experience is still to be improved Identity management for end users Some edge security issues

SmartContract Security and Lessons learned from the #theDao Hack• A very expensive lesson : 70M$ hack on theDAO ethereum smartcontract (June 2016)• Technically the hacker has executed the contract as writen/coded• Some lessons Complexity can be enemy with security The need for code formal verifications

Getting external data into the blockchain - Oracles• Blockchain security principles does not allow smartcontract to call directly external data feeds• Current solution involving oracles (« smartcontracts » exposing the data) have some limitations : No decentralized oracles to date, Vulnerability, Profitability, No standards

INTERNETBLOCKCHAIN

How do we get the data in ?

Enterprise ready implementations• To date, very few vendor options for mature implementation and connectors to the entreprise data• Still public blockchain offer the most interesting platforms for setting-up Proof of Concepts Bitcoin, Ethereum / Parity

Blockchain Governance• Blockchain is not just about technology, it’s also about governance & economics• Still some rules to be created & field tested : How to share the cost infrastructure ? How and who should handle un-resolved/rejected transaction ? How to keep some transaction private ? …..

Conclusion

Key Takeaways

Blockchain impacts strongly the Insurance Industry• Blockchain impacts are not limited to the finance industry• Blockchain can possibly impact all the aspects of the insurance• A market signal that the (insurance) blockchain move is for 2016 : Metlife joins the R3CEV consortium

MetLife Inc., one of the largest insurers in the world has joined the R3-led blockchain consortium that now counts 60 of the world’s largest

financial institutions.

Insurance giant MetLife is the latest financial institution to join the financial private blockchain consortium led by New York-based startup R3.

MetLife will partner and interact with other R3 members in an effort to explore the potential application of blockchain technology in the insurance

industry. Specifically, how distributed ledgers can streamline activities such as business processing, policy administration, customer payments, new

investments management and the distribution of proceeds, a statement revealed

An unique opportunity for open-innovation• The distributed nature of blockchain is a unique momentum To collaborate with industry peers to create (costs-saving) blockchain industry standards & applications To collaborate with new comers to create new products

Blockchain is to be explored from now - while total maturity comes• The most relevent use cases can only be found with experimentating the blockchain approach• Use case can already be experimented efficiently with existing public blockchains• Experimentations should be conducted with industry peers or other industries partners

Thanks for your attention

For #blockchain news curation, you can follow me on twitter

@vidal007