B3i: How did DLT find its place in Insurance?

The Concept of Distributed Ledger Technology

The reality is that all technology innovations raise interest as one should expect. But where the use of the technology is less obvious, it does take time to establish how it can be adapted and determine where the benefits can be derived. DLT is no exception and is not just a solution looking for a problem.

In very simple terms, a DLT platform enables information to be recorded in a digital format and for an exact copy of it to be shared across a number of parties. In effect, a copy of the ledger where the information is recorded, is distributed or shared in the network. The information can now be trusted to be authentic and accurate. This in turn facilitates traceability and auditability, features which will not be lost on a regulator or compliance officer.

Inherent in a DLT platform is cryptographic security which further enhances trust in the information or data being shared. And because the nature of the architecture behind the technology is common, the ability to standardise workflows and business processes also exists. The platform in effect means that applications can be interoperable, further simplifying transactions and data transfer internally, across multiple parties and even across industries. 

On the face of it, this significantly improves the process of sharing data. But in reality, 

DLT offers greater potential to significantly simplify business trading, making it more secure and faster which is far more transformative.  Commentators have suggested that DLT is equivalent to the Internet version 2. A grand view perhaps of a new technology but even the Internet started as a humble academic information sharing network.

What is the problem we are trying to solve?

In a traditional network, there is usually a single copy of the ledger held by a central party and when information is exchanged (such as between the insurer, broker and reinsurer), each participant replicates the information. Each one creates his own copy of the ledger, but problems arise when the information gets out of sync. This is solved through a reconciliation process. 

Currently, the sharing of information through email, PDF documents or spreadsheets adds to the administrative burden and increases the chance of information becoming corrupted. Where this passes through several hands, errors creep in and inconsistency increases with each step.

This process will sound familiar across many industries. It results in a slower operations which is prone to errors, leads to cumbersome reconciliations and contributes to contract uncertainty. In short, the business processes we have today add to the administrative cost of trading or transacting business. This fuels inefficiency resulting in  higher prices and slower service. 

B3i and its approach

B3i started life as a consortium created by some of the world’s largest insurers and reinsurers. In late 2016, this group sensed that DLT could bring some significant benefits to the way insurance is transacted. Insurance depends on sharing information between multiple parties in order to create quotes, underwrite risks, settle claims or simply manage financial transactions. This process is even more complex the commercial insurance or reinsurance world.

The consortium created a proof of concept (PoC) for a Natural Catastrophe Excess of Loss reinsurance contract which, on completion in late 2017, was tested by some 38 insurers, brokers and reinsurers. 

This reinsurance PoC was chosen as it is characterised by relatively low frequency transactions that carry large financial relevance, and a process which generally involves substantial manual work and reconciliations for all parties involved.

The outcome of the test programme was that material benefits could be derived through such a product, principally in reducing the administrative cost and having better quality and more reliable information which was capable of being shared faster than before and more securely. With this experience, the consortium decided to form a company incorporated in Zurich to develop this application commercially. The company now has 18 shareholders and over 40 staff.

The new B3i Nat Cat XoL product launched in late 2019, offering users several material benefits. Amongst these, the more important ones are featured in reduced effort in the insurance placement process, greater contract certainty through the shared ledger principle and operational risk reduction through the elimination of replicating data. The process becomes faster, cheaper and better rewarding all the participants in the value chain including the ultimate customer.

Opportunity for widespread development

The use of DLT by B3i offers a new paradigm that enables market participants to safely and transparently transact insurance business using shared applications and data in a way that was not possible before. This is manifested in removing error prone and wasteful data duplication, process duplication and the need for traditional integration.

Recognising this, B3i has developed Fluidity, a distributed network ecosystem. B3i Fluidity offers a DLT business network platform with all the services required to operate incorporated in it, and where distributed applications can be deployed and made available to all members. These applications can be built by B3i, approved partners or platform customers and by leveraging reusable components designed by B3i, application development is accelerated.

B3i sees the application of DLT as a unique opportunity for the insurance market to further transform itself by improving efficiency. Ultimately, this will deliver better solutions for end consumers through faster access to insurance with less operational risks and administrative costs.

The approach and key benefits derived from DLT are capable of being mirrored across many industries and we have already seen several inroads made for example in the areas of supply chain and marine transportation. It is early days for this innovative technology but like the Internet, it will not be built in a day and the desire to transform as well as creative inertia will see more and more applications emerging in the next few years.

Read this full issue of Trade Finance Talks, free

This article was part of TFG’s third issue of Trade Finance Talks: Trade Wars & Tradetech, launched at Sibos 2019. This free issue gets into the detail of trade wars, trade flows and geopolitics, as well as looking at how digitisation and fintech is bridging the trade finance gap. You can read the full edition for free here.

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