For this episode we were fortuitous to reconnect with Dante Disparte Founder and CEO of Risk Cooperative to look back on how blockchain has evolved in the insurance industry in 2018 and what we can expect for 2019.
What is blockchain?
For the insurance industry, Dante describes blockchain as a bordereau or a ledger that exists simultaneously in an exact form across multiple distributed computer systems. From the outset this creates a level of resilience, a level of tamper proofing that you don’t get from existing technologies today.
Retrospective of blockchain in the insurance industry in 2018
“Still the beginning”
“Still the beginning” is how Dante would characterise blockchain in the insurance industry. In spite of Bitcoin recently celebrating its 10thanniversary, it’s really only been in 2018 that we started seeing large scale enterprise tinkering with blockchain technology.
In January 2018, Dante penned an article “One Thing Is Clear From Davos, Blockchain Is Out Of Beta” in Forbes, where he stated that at least 50% of the Fortune 500 were embarking in deep experimentation with blockchain. 2018 was the year of orientation, and Dante believes that 2019 will be the year of experimentation at scale. 2020 would see the much broader adoption of the technology across asset classes and across industries.
Consortiums and competitive advantage
The most mature and evolved model in the insurance industry are the consortia at B3i and the RiskBlock Alliance. This model allows a risk averse industry, such as insurance, to understand the technology and follow their peers in getting basic POCs and use cases.
Dante’s personal view of the world is that the consortia approach amounts to co-opetition which is tantamount to having Amazon partner with Walmart and JC Penny’s (For the UK: Tesco partner with Sainsbury, Asda and Lidl) in building ecommerce platforms. For Dante there is a genuine opportunity for insurers, brokers and others in this industry to leverage emerging technologies like blockchain and others to get a competitive advantage. Firms that really embrace those technologies, instead of limiting it to back end efficiency plays, will really take a lead over their competitors.
In episode 23 “Blockchain from an Allianz perspective and lessons learnt” Bob Crozier, Head of Global Blockchain Centre of Competence at Allianz. Pointed out that “B3i is not about getting a competitive advantage. It is for the industry and by the industry and its goal is to use blockchain to address industry pain points, help members reduce their cost base and make customers’ lives easier.”
Whilst Dante agrees that there is value in such consortia his issue is that the strategic challenges the insurance industry faces require competitive dynamics than the consortia model doesn’t allow for. The average expense ratio is between $0.30 and $0.50 on every dollar of risk capital.
If a firm tries to become more efficient to risk allocation and risk pricing but yet everybody in the insurance industry is following the same model in leveraging technology in exactly the same way, that firm’s potential net gain has been washed away.
Opportunities for Innovation – Insurwave Style
Insurwave is a great example of opportunities for innovation that is triggered by the buy side of the market, especially when you are a Maersk with enough buying power and clout to force the insurance industry to innovate.
Need for Digital Transformation
“Where the internet was a disruptive technology in every sense of the word, blockchain is an augmenting technology”
Blockchain isn’t meant to disrupt or displace the core function of the insurance industry, after all what is an insurance industry but a promise to pay. Blockchain is a technology that is here to amplify the trust.
Maersk has a fortuitous balance sheet which in some ways means it can opt out from the insurance market all together. We are seeing an increasing wave of large firms self-insuring themselves and even opting out of the insurance market. Dante uses the example of VW emissions scandal, who in spite of this scandal still managed to become the largest automaker the year after. The role insurance can play in those large enterprises becomes less and less relevant when insurance operating model is still stuck in the year 1730.
See Insureblock’s “This is us” video for a playful put at the insurance industry being stuck in the past.
Dante points out to the new operating realities in the marketplace that can’t be ignored by the insurance industry. There is a new generation of consumers born with a smart phone in their hand used to instant gratification. There is nothing instant or gratifying about the process of getting a class of insurance underwritten under traditional norms and through traditional value chains.
Even the developments done by Etherisc and by Fizzy in providing some form of instantaneity in terms of protection and claims outcome and remediation. Insurance at the core is an instrument of utmost good faith and technology enables insurers to show that. That’s a very powerful model of transformation that doesn’t come at the expense of traditional distribution model but it does tap new model opportunities.
The new megatrend is with regards to the asset light economy we live in. New generations are urban dwellers who opt out from owning a car and who share an apartment with friends longer than previous generations. This represents both as an opportunity and a challenge for insurers if they are willing to decouple their traditional distribution models. Nothing but technology can enable insurers to reduce their 30-50% expense ratio to price their solutions sufficiently to attach to those new buying habits.
Last new megatrend is with regards to a world being etched by complex big catastrophic events, which Dante calls “non-conforming risks”. Risks that don’t care about actuarial models that can level entire cities or communities. Think climate change related ones. These risks are happening at an increased frequency. The insurance industry has a unique double jeopardy – the assets that they once thought were safe to offset liabilities on the balance sheet are now proven to be very risky. Insurance industry have to look at bringing new talent, new technology and new strategies to face those challenges.
Predictions for 2019
Like any big wave of technology, Dante believes, we have now crested the peak cycle of the hype cycle and are now entering a more mature phase. Blockchain will now fade into the background as a callout technology. What customers want is trust, transparency and a technology like blockchain that can defuse the asymmetries of information that don’t work in the markets favour. Firms will be able to do achieve that by using blockchain technology but without putting the label on it. As a technology, blockchain doesn’t sit in isolation from other new modern technologies such as AI, IoT, Big Data, Machine Learning and Robotics.
Blockchain for Insurance – June 18-19th2019 in London
Dante and Walid will be co-chairing the 3rdinstalment of the Blockchain for Insurance conference in London. Insureblocks and Dante are both looking forward to catching up with the real blockchain practitioners outlining their progress. We aim to provide the delegates with the ability on how to sell digital transformation internally. To provide them with real proof points from insurers who have developed blockchain solutions for them to benchmark to and learn from. To find out more about this conference click here: https://blockchain-insurance-europe.com/
Many thanks Dante for participating with us in this fireside chat and we look forward to greeting you in London on the 18th of June. If you liked the podcast please do review it on iTunes. If you have any comments, suggestions on how we could make it better please don’t hesitate to add a comment below. If you’d like to ask a question to Dante, feel free to add a comment below and will get him over to our site to answer your questions.