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How blockchain technology could revolutionise the insurance industry

Presentation given to IBM / ACCA event to explain Blockchain, provide a simplified description of what it, and Distributed Ledger Technology, is and what potential use cases there are in Insurance

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How blockchain technology could revolutionise the insurance industry

  1. 1. Executive Briefing for Insurance sector Managing financial uncertainty in challenging times 19 September 2016 Association of Chartered Certified Accountants (ACCA), London 1 © Distlytics Ltd 2016 How Blockchain technology could will revolutionise the insurance industry Gary Nuttall Managing Director
  2. 2. Agenda 1. Introductions 2. Blockchain Primer 3. So what ? 4. General Use Cases 5. Insurance Opportunities (& Threats) 6. What next 7. Q & A
  3. 3. 1 - Introduction: Me
  4. 4. 1 - Introduction: You General Insurance /B2C ? Specialty / B2B ? Blockchain knowledge?
  5. 5. This presentation reflects my personal views and is not intended to reflect the views of past, current and prospective employers, clients or other agents. "Prediction is very difficult, especially if it's about the future." Nils Bohr, Nobel laureate in Physics Caveat: Please read the small print…
  6. 6. 2 – Blockchain Primer
  7. 7. 2 – Blockchain Primer – Distributed Ledger
  8. 8. What is it? …
  9. 9. Let’s look instead at a process… A basic transaction between two parties Barclays HSBC
  10. 10. Transferring value Barclays HSBC £500
  11. 11. A Ledger is simply a journal of transactions JOURNAL -ID DATESTAMP FROM TO CURRENCY AMOUNT 1 01/01/2016 08:35 BARCLAYS HSBC GBP 500.00 Barclays HSBC £500
  12. 12. …usually lots of transactions BARCLAYS JOURNAL JOURNAL-ID DATESTAMP FROM TO CURRENCY AMOUNT 1 01/01/2016 08:35 BARCLAYS HSBC GBP 500.00 2 01/01/2016 09:45 BARCLAYS SANTANDER GBP 4,250.00 3 01/01/2016 11:35 SANTANDER BARCLAYS GBP 2,215.00 Barclays HSBC Santander £500
  13. 13. BARCLAYS JOURNAL JOURNAL-ID DATESTAMP FROM TO CURRENCY AMOUNT 1 01/01/2016 08:35 BARCLAYS HSBC GBP 500.00 2 01/01/2016 09:45 BARCLAYS SANTANDER GBP 4,250.00 3 01/01/2016 11:35 SANTANDER BARCLAYS GBP 2,215.00 HSBC JOURNAL JOURNAL-ID DATESTAMP FROM TO CURRENCY AMOUNT 1 01/01/2016 08:35 BARCLAYS HSBC GBP 500.00 4 01/01/2016 13:35 HSBC SANTANDER GBP 105.00 SANTANDER JOURNAL JOURNAL-ID DATESTAMP FROM TO CURRENCY AMOUNT 2 01/01/2016 09:45 BARCLAYS SANTANDER GBP 4,250.00 3 01/01/2016 11:35 SANTANDER BARCLAYS GBP 2,215.00 Everyone has a copy of their own ledger
  14. 14. PROBLEMS! RECONCILIATION – Need to check that every record of every transaction has been copied to each other’s systems correctly. AUDIT – Need to prove that the system works consistently
  15. 15. PROBLEMS! COSTS • Processing overhead (needs computing power) • Reconciliation systems need to be designed, developed, tested & supported • Excel addicts writing macros, functions & stuff that goes wrong • Auditing overhead – cost of auditors, audits, etc. • Data Quality issues – End up “working around” problems TIME • Need to wait for reconciliations to be executed and verified • Audits are after the event and aren’t preventative RECONCILIATION – Need to check that every record of every transaction has been copied to each other’s systems correctly. AUDIT – Need to prove that the system works consistently
  16. 16. Merge all the Ledgers into one… BARCLAYS JOURNAL JOURNAL-ID DATESTAMP FROM TO CURRENCY AMOUNT 1 01/01/2016 08:35 BARCLAYS HSBC GBP 500.00 2 01/01/2016 09:45 BARCLAYS SANTANDER GBP 4,250.00 3 01/01/2016 11:35 SANTANDER BARCLAYS GBP 2,215.00 HSBC JOURNAL JOURNAL-ID DATESTAMP FROM TO CURRENCY AMOUNT 1 01/01/2016 08:35 BARCLAYS HSBC GBP 500.00 4 01/01/2016 13:35 HSBC SANTANDER GBP 105.00 SANTANDER JOURNAL JOURNAL-ID DATESTAMP FROM TO CURRENCY AMOUNT 2 01/01/2016 09:45 BARCLAYS SANTANDER GBP 4,250.00 3 01/01/2016 11:35 SANTANDER BARCLAYS GBP 2,215.00 A Mutual Ledger…Less reconciliation JOURNAL-ID DATESTAMP FROM TO CURRENCY AMOUNT 1 01/01/2016 08:35 BARCLAYS HSBC GBP 500.00 2 01/01/2016 09:45 BARCLAYS SANTANDER GBP 4,250.00 3 01/01/2016 11:35 SANTANDER BARCLAYS GBP 2,215.00 4 01/01/2016 13:35 HSBC SANTANDER GBP 105.00 SOLUTION!
  17. 17. 2 – Blockchain Primer – Blockchain
  18. 18. JOURNAL-ID DATESTAMP FROM TO CURRENCY AMOUNT 1 01/01/2016 08:35 BARCLAYS HSBC GBP 500.00 2 01/01/2016 09:45 BARCLAYS SANTANDER GBP 4,250.00 3 01/01/2016 11:35 SANTANDER BARCLAYS GBP 2,215.00 4 01/01/2016 13:35 HSBC SANTANDER GBP 105.00 BLOCK 1 BLOCK 2 BLOCK 3 DATA PREV HASH CURRENT HASH DATA PREV HASH CURRENT HASH DATA PREV HASH CURRENT HASH 1 1011 1100 1 1100 1101 1 1101 1111 BLOCK - CHAIN …now very difficult to change data in a prior block Which decreases Auditing overhead Put the data into blocks and chain them together
  19. 19. JOURNAL-ID DATESTAMP FROM TO CURRENCY AMOUNT HASH BLOCK BLOCK HASH START BLOCK START HASH 1 01/01/2016 08:35 BARCLAYS HSBC GBP 500.00 1111 0 110111 2 01/01/2016 09:45 BARCLAYS SANTANDER GBP 4,250.00 101 3 01/01/2016 11:35 SANTANDER BARCLAYS GBP 2,215.00 100011 4 01/01/2016 13:35 HSBC SANTANDER GBP 105.00 101101 1 1111000 IF FROM = %USER% OR TO = %USER% THEN DISPLAY LINE JOURNAL-ID DATESTAMP FROM TO CURRENCY AMOUNT 1 01/01/2016 08:35 BARCLAYS HSBC GBP 500.00 2 01/01/2016 09:45 BARCLAYS SANTANDER GBP 4,250.00 3 01/01/2016 11:35 SANTANDER BARCLAYS GBP 2,215.00 Barclays HSBC JOURNAL-ID DATESTAMP FROM TO CURRENCY AMOUNT 1 01/01/2016 08:35 BARCLAYS HSBC GBP 500.00 4 01/01/2016 13:35 HSBC SANTANDER GBP 105.00 …now users can only access their own data Which decreases Security Auditing overhead Put crypto-security onto the Ledger
  20. 20. Barclays HSBC SantanderCo-Op First Direct Block 1 Block 2 Block 3 Block 1 Block 2 Block 3 Block 1 Block 2 Block 3 Block 1 Block 2 Block 3 Block 1 Block 2 Block 3 …And you have a Mutual Distributed Ledger Distribute a copy of the ledger to everyone
  21. 21. …Giving a Private, Permissioned Ledger Metro Bank Restrict access only to members…
  22. 22. It’s a write-only database That everyone has an identical copy of With all entries timestamped And the data is cryptographically secured So, back to the definition….
  23. 23. It’s a write-only database That everyone has an identical copy of With all entries timestamped And the data is cryptographically secured So, back to the definition…. Which means: • A complete history of all transactions - great audit trail • Everyone has a copy of the same thing - No need for reconciliation • It’s highly distributed – Makes it cyber-resistant • Data is cryptographically secured – overcomes security issues
  24. 24. But, there’s more!
  25. 25. Other things could go onto a ledger…such as assets MRS JENKINS BARRATT’S £455,123.00 21 ACACIA AVENUE Journal ID Datestamp FROM TO UNIT IDENTIFIER 1 01/01/2016 11:45:00 MRS JENKINS BARRATT'S GBP 455,123.00 2 01/01/2016 11:45:01 BARRATT'S MRS JENKINS HOUSE 21 ACACIA AVENUE 3 02/01/2016 10:35:00 MR SMITH BMW DEALER GBP 35,455.00 4 02/01/2016 10:35:01 BMW DEALER MR SMITH CAR BMW X3 (LS16 ABC) BMW DEALER £35,455 BMW X3 (LS16 ABC) MR SMITH
  26. 26. Links to other things….such as documents Counterparty Underwriter Journal ID Datestamp TYPE REFERENCE CLASS IDENTIFIER 1 01/01/2016 11:45:00 KYC PASSPORT PDF ABC123 2 01/01/2016 11:45:01 KYC DIR CHECK PDF ABC124 3 02/01/2016 10:35:00 CLAIM FNOL EMAIL DEF124 4 02/01/2016 10:35:01 CLAIM ASSESS WORD DOC121
  27. 27. Then there’s Smart Contracts… Journal ID Datestamp FROM TO UNIT IDENTIFIER 1 01/01/2016 11:45:00 ATRIUM LUFTHANSA EUR POLICY123 2 01/01/2016 11:45:01 BEAZLEY FARMER MCGREGOR GBP POLICY234 POLICY12 3 IF (POLICY_IS_ACTIVE AND PREMIUM_PAID AND CLAIM_CONDITION_MET THEN PAY_CLAIM POLICY234 IF (POLICY_IS_ACTIVE AND PREMIUM_PAID AND CLAIM_CONDITION_MET THEN PAY_CLAIM Connect with data sources, providing unquivocable evidence of… Weather conditions (Temperature, precipitation) Flight Delays Automating Claim Notification process, thereby Decreasing Cost of Claim Management Speeding up Claim Improving Customer Experience
  28. 28. 2 – Blockchain Primer - Summary • Blockchain = data, chained together, in blocks • Distributed Ledger Technology = Means by which a database is deployed Terms are often (albeit incorrectly) used synonymously For this session, we’ll use the term Blockchain
  29. 29. 3 – So what ? Immutable – complete, timestamped, audit trail Cyber resilient – still functional if nodes removed Reconciliation significantly reduced Cyber protected – can’t be easily hacked or ransomed Smart Contracts can be created
  30. 30. 4 – General Use Cases - Themes OUT The removal of Trusted Third Parties: • Conveyancing • Banking • Escrow Trusted Registers: • Land registry • Asset ownership • Title Deeds Value Transfer: • Payments • Foreign Exchange • Trade Finance IN • New technology expertise needed • “Legal programmers” • Advisory – Patents/IP/Copyright • New insurance products • Challenger Banks • Decentralised Autonomous Organisations • Government Services • Digital Copyright
  31. 31. 4 – General Use Cases - Examples Emerging themes Example Financial Transactions Bitcoin, BTC Asset Register Honduran Land Register Provenance Everledger, Provenance.org Identity Management Estonia eRegister Public Services UK Benefits Smart Contracts TheDAO Voting System Follow My Vote Decentralized Markets Open Bazaar, slock.it
  32. 32. 5 – Insurance Opportunities (& Threats)
  33. 33. 5 – Insurance Opportunities (& Threats)
  34. 34. 5 – Insurance Opportunities (& Threats)
  35. 35. 5 – Insurance Opportunities (& Threats)
  36. 36. 5 – Insurance Opportunities (& Threats)
  37. 37. 5 – Insurance Opportunities (& Threats)
  38. 38. 5 – Insurance Opportunities (& Threats)
  39. 39. 5 – Insurance Opportunities (& Threats)
  40. 40. Hype or Reality ?
  41. 41. Hype or Reality ?
  42. 42. Hype or Reality ? Blockchain News, 8th September 2016: Blockchain company Symbiont, the market-leading smart contracts platform for institutional uses of blockchain technology, will host a live WebEx demonstration of its platform for insurance industry participants on September 20, 2016 at 2 p.m. ET. Participants must pre-register. Only insurance industry executives, investors, brokers or consultants will be approved to participate. During the demo, Symbiont will execute a live catastrophe swap contract between two hypothetical parties, which will be recorded on its distributed ledger. The demo will then follow the lifecycle of the swap, showing how Symbiont’s proprietary smart contract technology handles various scenarios–including the trigger of a payment pursuant to the swap, and how the technology handles automatic updates when new industry loss estimates become available. Participants in the demo will view a side-by-side depiction of the screens of both parties to the hypothetical swap. This format allows participants to track what each party sees at all times, and will show automatic updates to the ledger when events meet pre-defined triggers. Symbiont is the only smart contracts platform currently capable of providing such service to the insurance industry. It provided a version of its technology for a pilot catastrophe swap in June 2016, which was executed by a top European insurance company.
  43. 43. Hype or Reality ? International Business Times, 15 June 2016: Insurance giant Allianz Group has partnered with smart contract pioneer Symbiont to model the business logic of a bilateral catastrophe swap on a blockchain. Catastrophe swaps allow insurance companies to transfer concentrated exposures to insured weather events such as hurricanes and tornadoes to investors seeking to gain risk exposure. Smart contracts reduce the time and costs of managing catastrophe swaps, and can lower the cost of issuance of insurance linked securities (ILS). The efficiencies gained with smart contracts also have the potential for issuers to provide a greater volume and diversity of ILS, expanding their appeal to investors, said a statement released by the firms.
  44. 44. 5 Reality – Opportunities in Insurance Product (company) Operational (Market) Asset Registry (Everledger) Identity Management Parametric Insurance (Allianz) Placement IoT Integration Reinsurance Claims Settlements KYC / AML Accreditation Register Document Management
  45. 45. From LM TOM “Architecture & Common Services – Overview” http://isupporttom.london/media/8816/lm-tom-enterprise-architecture-market-v1-0.pdf 5 Reality – Opportunities in Insurance
  46. 46. 5 Reality – Opportunities in Insurance
  47. 47. 6 – What Next ?
  48. 48. 6 – What Next ? Protocol Commonly used for Enables TCP/IP (1980’s) Internet Data sharing HTTP (1990’s) World Wide Web Displaying information Blockchain (2008) Distributed Ledger Transfer of value
  49. 49. 6 – What Next ? Quote from Mayor of Cambridge, MA after having the telephone demonstrated in 1876: I can see the time that every City will have one! "This 'telephone' has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.“ Western Union telegraph company memo, 1877
  50. 50. 6 – What Next ?
  51. 51. 6 – What Next ?
  52. 52. Q & A 52 © Distlytics Ltd 2016 Thank you! Gary Nuttall contact details: eMail: gnuttall@distlytics.com Twitter: @GPN01 LinkedIn:uk.linkedin.com/in/garynuttall Web: www.Distlytics.com www.linkedin.com/in/garynuttall www.linkedin.com/in/garynuttall www.linkedin.com/in/garynuttall

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