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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

How Blockchain technology could revolutionise the insurance industry

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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

Agenda

1. Introductions

2. Blockchain Primer

3. So what ?

4. General Use Cases

5. Insurance Opportunities (& Threats)

6. What next

7. Q & A

1 - Introduction: Me

1 - Introduction: You

General Insurance /B2C ?

Specialty / B2B ?

Blockchain knowledge?

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…

2 – Blockchain Primer

2 – Blockchain Primer – Distributed Ledger

What is it? …

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

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

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

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!

2 – Blockchain Primer – Blockchain

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

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

Barclays

HSBC

SantanderCo-Op

First Direct

Block

1Block

2

Block

3

Block

1Block

2

Block

3

Block

1Block

2

Block

3

Block

1Block

2

Block

3

Block

1Block

2

Block

3

…And you have a Mutual Distributed Ledger

Distribute a copy of the ledger to everyone

…Giving a Private, Permissioned Ledger

Metro Bank

Restrict access only to members…

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….

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

But, there’s more!

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

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

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

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

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

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

5 – Insurance Opportunities (& Threats)

5 – Insurance Opportunities (& Threats)

5 – Insurance Opportunities (& Threats)

5 – Insurance Opportunities (& Threats)

5 – Insurance Opportunities (& Threats)

5 – Insurance Opportunities (& Threats)

5 – Insurance Opportunities (& Threats)

5 – Insurance Opportunities (& Threats)

Hype or Reality ?

Hype or Reality ?

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.

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.

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

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

5 Reality – Opportunities in Insurance

6 – What Next ?

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

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

6 – What Next ?

Q & A

52 © Distlytics Ltd 2016

Thank you!

Gary Nuttall contact details:

eMail: [email protected]

Twitter: @GPN01

LinkedIn:uk.linkedin.com/in/garynuttall

Web: www.Distlytics.com

www.linkedin.com/in/garynuttallwww.linkedin.com/in/garynuttall

www.linkedin.com/in/garynuttall