22 January 2018
Finserv Experts managing director Areiel Wolanow gave evidence this evening for the All-Party Parliamentary Group on Blockchain. Areiel spoke on the transformative potential for blockchain in the insurance industry, and cited work carried out by Finserv Experts consultants here in Indonesia, Kenya, and here in the London Market.
Here is a written transcript of his remarks…
Areiel Wolanow is the Managing Director of Finserv Experts, an independent consultancy that provides advisory and delivery services for technology-enabled business transformation. Areiel has been working with blockchain solutions since 2014. At IBM, Areiel was asked to create their blockchain services practice for the ASEAN region; in this role he was responsible for selling and delivering IBM’s very first blockchain consulting project: a trade finance prototype for HSBC and Bank of America. Areiel has advised central banks and financial regulators around the world on blockchain adoption, and most recently led the delivery of a working DLT prototype for Lloyd’s of London and the London insurance market. He is currently engaged in designing a mobile-based microinsurance solution for natural disasters in Indonesia
In many industries, blockchain is thought of first and foremost as a tool for disintermediation. While this is also true to some extent in the insurance industry, significant disintermediation has already taken place in our lifetimes, well before blockchain was invented. Thirty years ago, retail brokers were the primary distribution channel for motor, home, and life insurance. Today, retail brokers are almost non-existent, aggregators and direct consumer search have been proven to meet the needs of insurance buyers at a much lower cost than brokers were able to meet.
Nevertheless, blockchain has the potential to be a major disruptor for how insurance is delivered in several key ways. Blockchain provenance solutions, for instance, can provide assurance that insured goods are genuine, reducing the incidence of fraudulent claims and thereby the overall cost of insurance delivery. Blockchain market solutions, similar to the prototype we developed for Lloyd’s, can significantly lower the cost of placing large, complex insurance contracts, as well as the cost of administering claims. Currently, when an insurance contract is placed in the London market, many parties need to create their own record of the same contract in their individual IT systems. This leads to huge amounts of work in re-keying and reconciliation; it also is the root cause of many errors or gaps in quality. By enabling multiple parties to share a single version of the truth, blockchain solutions can at the same time reduce cost and increase the quality of delivery. This allows insurance professionals to spend far less time on administrative tasks and more time selling and directly supporting clients. The magnitude of these cost savings is dramatic – there are several solid empirical evidence sets of administrative cost reductions of 80%-90%
But perhaps the single greatest change to insurance that blockchain can make possible is in the realm of microinsurance. Insurance has never been available to most people in the world because the cost of administering a £200 policy is not that different from the cost of administering a £2,000,000 policy. For instance, Finserv Experts is right now working on a project that will make natural disaster insurance available to people living in Indonesia. In the event of a disaster, such as the recent tsunamis, the policy would provide a minimum of one year’s income. It would be paid parametrically – no claim investigation would be required. The policy could be taken out via mobile phone, and the claim paid via mobile phone as well. The ability of a community to recover from these disasters will be completely transformed.
Guidance for lawmakers
There are two pieces of guidance I would like to offer
First, blockchain is one of the few areas in which businesses would welcome more regulation rather than less. The benefits of DLT are increasingly well understood, but innovators are still wary of taking risks because of the level of uncertainty about whether or not a given business model will ultimately be allowable. In the fintech space, the UK already has a great reputation for forward-thinking policy. By providing a clear framework under which blockchain-based business can operate, lawmakers can both capitalize on and further differentiate the UK’s thought leadership.
Second, and far more important, I would like to invite our lawmakers to consider directly sponsoring microinsurance initiatives here in the UK. The benefits of making insurance of all kinds available and affordable to everyone in the UK. The benefits go way beyond mitigation of risk. Affordable insurance will make it possible for far more people to buy homes, start businesses, and otherwise engage in more productive, successful, and fulfilling lives.