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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
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…
Let’s look instead at a process…
A basic transaction between two parties
Barclays HSBC
Transferring value
Barclays HSBC
£500
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
…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
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!
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
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
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
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
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
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
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