AIG, and Standard Chartered, with IBM, have delivered the first multinational blockchain insurance policy. This solution creates trust and transparency in the underwriting process. In turn, this enables AIG and Standard Chartered to deliver multinational insurance more efficiently.
Rob Schimek, CEO of Commercial, AIG said: “Our pilot proves blockchain has a powerful role to play in the future of insurance. Any technology, including blockchain, that can increase trust and transparency for an industry whose pillars are built on that, should be fully explored. We’re excited to be delivering innovation that matters to our clients – and co-developing key components of this new technology together.”
To deliver blockchain insurance
Coordinating management and placement of multiple insurance policies across multiple countries is highly complex. IBM built the pilot based on Hyperledger Fabric – a blockchain framework and one of the Hyperledger projects hosted by The Linux Foundation.
Working together, AIG, Standard Chartered and IBM converted:
- a multinational, controlled master policy written in the UK
- three local country policies
- into a “smart contract”.
The objective was to provide a shared view of policy data and documentation in real-time. This also allows visibility into coverage and premium payment at the local and master level as well as automated notifications to network participants following payment events.
The pilot also demonstrates the ability to include third parties in the network. Third parties can include brokers, auditors and other stakeholders. Each can have a customized view of policy and payment data and documentation.
The three parties chose to execute this initiative in one of the most complicated areas of commercial insurance: multinational risk transfer. Complexity meant the trio could assess blockchain’s potential to:
- reduce friction
- increase trust in other areas of the insurance value chain.
What this blockchain insurance covers, and why
Blockchain is an immutable, security-rich and transparent shared digital ledger. As such it provides:
- a single view of truth across all participants
- selective visibility to participants based on their credentials
- the ability to record and track events and associated payments in each country related to an insurance policy
- inviolability: no one party can modify, delete or even append any record without the consensus from others on the network.
Such a level of transparency helps reduce:
- the need for the parties to contact each other to view policy and payment data and the status of policies.
The multinational “master policy” came from London. For the pilot, three local policies were chosen, to cover the US, Kenya and Singapore. The participants selected these three jurisdictions because:
- the US is a large and complex market
- Singapore is a growth market for Standard Chartered
- Kenya has a specific regulatory requirement, known as “cash before cover” which means that cover must be paid for before it is valid.
What’s it mean?
One of the challenges of smart contracts is all parties understanding the implications. As the smart contracts are encoded as part of the blockchain, customers need to be educated enough to understand that they cannot be changed or altered. The only solution is to delete and start again. Another challenge is the customer understanding that as soon as the conditions set in the smart contract are met, it will execute. In insurance terms this raise some interesting challenges. For example, any breach of contract that is detected will automatically void a policy. There is no period of renegotiation with the insurer, it is an absolute action.
As other insurance companies follow this project it will be interesting to see how far they go. Will they move beyond a single smart contract covering the entire policy or get sophisticated enough to create smart contract clauses?
This is an example of real blockchain usage, real in the sense that the ‘target’ chosen – multinational risk transfer – comes with many complications. What is not so clear is how successful the pilot was and what practical value the use of blockchain technology added. The answers to these will determine or shape long term take up.