This article first appeared in Commercial Risk Europe.
For the insurance market, there has arguably been no greater potential for growth and innovation in recent years than that provided by blockchain, or distributed ledger technology. To realise this potential and reap the benefits of blockchain, it is widely acknowledged that collaboration across the value chain will be vital.
A number of recent announcements towards the end of 2017 and transactions in the commercial insurance space have already echoed this sentiment and have involved large scale cross-market collaboration. This trend coincides with blockchain enabled platforms being deployed in live scenarios, rather than being limited to proof-of-concept experimentation.
In the trade finance space, a global logistics company, AIG, Standard Chartered Bank and TradeIX partnered to establish the first blockchain-enabled platform for the streamlined purchasing of trade finance invoices. AIG will provide the credit risk mitigation supporting the underlying trades.
Managing global invoice payments can be time-consuming and inefficient for those operating in the logistics market. The unique requirements of trading partners mean logistics firms often establish multiple, local, trade finance programmes, which can involve duplication, inefficiencies and minimal standardisation across the organisation.
These challenges make it harder for logistics firms to optimise working capital and have effective visibility of compliance and counterparty risk. Through the transaction, the parties involved partnered to create a secure and more efficient solution in relation to trade finance invoicing leveraging blockchain technology.
Having advised on this and other blockchain platforms in the insurance and banking sectors, we are increasingly seeing that it is the insurance industry that can lead and facilitate innovation in the use of blockchain type technologies, ultimately to the benefit of its client base and counterparties. It follows other high profile announcements around blockchain-enabled platforms seeking efficiency gains for end users.
These include B3i’s (the industry consortium involving SCOR, Munich Re, Swiss Re and others) blockchain based smart contracts management system for reinsurance transactions. B3i’s platform is seeking ultimate possible productivity gains of up to 30% across the whole value chain. A multi-party developed platform to secure and streamline marine insurance processes has also been announced recently.
Not only could such platforms lead to a fundamental change in how insurance transaction participants transact and share data, they could also alter the traditional controllers of such transactions. Before, investment banks and the large insurance brokers would structure deals across value chains. Now, the efficiencies generated by these technologies have given other participants, such as insurers, end users and platform providers, the chance to drive, structure and lead these innovations in 2018 and years to come.