How blockchain is changing insurance

December 2018

Three people in office meetingMartin Cooper MBCS RITTech talks with XL Catlin’s Hélène Stanway about how blockchain will allow some types of risks to be priced in near real time.

Hélène Stanway is a digital leader at XL Catlin, where her role involves identifying, experimenting with and learning about new technologies - technologies that may, one day, enhance XL Catlin’s ability to help its customers manage and mitigate risk in new ways. Currently, she tells us, she and her team are experimenting with artificial intelligence, the internet of things, augmented reality and, of course, blockchain.

So, tell us about XL Catlin’s interest in blockchain? Why are you eyeing the technology and what problems will it help you to solve?
The journey started, probably, 18 to 24 months ago when we did our first experiments. We just made a blockchain internally. We played all of the roles in an insurance transaction. So, in a commercial insurance transaction you have a client, you have a broker and then you have us - as an insurance company.

In today’s way of running an insurance transaction, all three of these need to be present. This means that you have a bunch of information that the client provides. It’s to do with their exposures - the assets that they want to insure and the types of coverage that they want to buy. That goes to the broker. The broker will then go to numerous carriers and negotiate the best deal for that client. So, you’re already getting a view of the information passing from client to broker to carrier.

Now, the insurance industry spends a lot of time reconciling the information throughout the lifecycle of a transaction. There are lots more data points too. That all causes a lot of friction and it causes a lot of delays. We wanted to try a blockchain and see if it could solve the problem of friction and see if it could reduce the time it takes for the insurance transaction to happen.

What’s interesting is, we didn’t do this alone. We collaborated with clients and with brokers to develop the idea together. I think it’s also very important to remember that we didn’t just say: ‘Right, this is the insurance transaction today, let’s just stick a blockchain on it and see what happens.’ Rather, we spent time reimagining the processes. We said: ‘Okay, we know what blockchain does. We definitely know how we operate today. How can we reimagine our process based on those very early learnings?’ It was really interesting because we were able to use that technology to actually take out some of the slow process steps.

Specifically, we started off with a register of assets for Maersk, the big shipping company. We used their hulls as the type of business that we wanted to underwrite. Today we typically get fewer than ten datapoints per vessel. From those we work out the risks and then the prices.

What would those datapoints be then for someone like Maersk?
For a hull it be would variables like the type of vessel, the age, the tonnage, who owns it, and that sort of thing. We put those in the blockchain and we also put in some other data feeds too. For example, sensor data - IoT data from the hull. For the register of assets in the blockchain, we went from fewer than 10 datapoints to north of 30 datapoints. We want to increase this to 50 datapoints plus per vessel.

In the blockchain, Maersk’s data moved immediately through the system - through the nodes that we created with the broker and ourselves and another carrier. We could see that data in near real time. So, that old problem of the data moving slowly from client to broker to us was gone. With a blockchain we had that single source of the truth.

How long would a traditional paper-based transaction take?
It can take months of back and forth to get to the right picture and to negotiate the right price. There’s obviously no automation in the process today.

Are there any applications or processes that blockchain is naturally suited to?
Absolutely. Anything where there are multiple people involved, and I don’t just mean internally, I mean externally as well. It’s useful where there are multiple people involved and where you need to talk about the same set of data. Data can be physical, actual data points, but it can also be documents. You can put documents in the blockchain as well. So, anything where you need to talk to multiple people.

I think blockchain really lends itself well to complexity. Maersk is one of the biggest companies in the world, it’s hugely complex. Blockchain has made it a lot simpler because they’ve now got a single version of the truth.

What about smart contracts? What are they? How do they work and why are they so attractive?
Today, things are done in a very manual way. But smart contracts enable you to automate some of those processes. For example, clients pay more premium if they go into more risky areas around the world. These are typically called war zones. These areas are geo-fenced, or geo-located. Now, because we’ve also got IoT sensor data from the vessels, we know exactly where they are. This means that when a vessel approaches a warzone, and because you’ve got this real time view of data, the captain of that ship can make a decision: ‘Okay, I know this area is more risky. But, am I going to go into that area and pay more of  a premium?’

The ship would get stamped when it went into the area and stamped when it went out, so the premium could then automatically get calculated. The captain of the vessel could make a different decision: ‘Okay, I’m going to go around the war zone. This may cost me more in fuel but may ultimately be a slightly safer bet.’ And all of that automation of the calculation of a premium is all achieved through the smart contract.

How important is interrogating, reimagining and agreeing business process before you begin a blockchain project?
You absolutely need to have a good view of your process but then I wouldn’t just say you have to have it nailed down. You really have to be open minded.

Blockchain is a young technology, do you think it’s too early within this technology’s lifespan to predict whether it’s going to be a disruptive force or not? It seems like it’s a very long-term play?
I really see blockchain as a long-term play. But I would say that it is going to have huge applicability once people realise exactly what it can do. And it’s going to be really interesting once it disrupts the roles that people play today and the tasks that people have.

We’ve talked about blockchain’s good side. What about the bad. What risks does it pose, or can it pose, for businesses?
The challenges to come are going to be how different blockchains operate together, that’s going to be really interesting. The bigger risk is the people risk though. Do we have enough talent - either in the computing industry or in the insurance industry - to support the scale and the speed at which people are going to want to adopt this technology? I think the bigger risk is that we don’t have enough talent to be able to service the demand.

What kind of advice would you give to businesses, or boards, looking to adopt blockchain?
It’s really interesting because people think: ‘Oh my god, blockchain is really massive, we can’t possibly tackle it.’ And actually, that’s not true. You can just start small. It’s just a question of finding that one use-case.

Image: Getty/skynesher