Insurers and Reinsurers Launch New Blockchain Initiative at Monte Carlo 2017
The DOCOsoft roving reporter made a re-appearance at the 2017 Monte Carlo RVS Conference. The canapés and champagne were a delight as ever, however, the long nights, early mornings and 15 minute speed meetings – timed on the trusty IPhone 6 – all took their toll and our reporter is now “resting” in a small convalescence home in an obscure area of South London. A re-appearance is expected some time in late November to coincide with the start of Christmas festivities.
The big InsureTech news at this year’s conference was the unveiling of the B3i present smart contract management system. The Blockchain Insurance Industry Initiative B3i presented its newly developed prototype smart contract management system.
B3i is an initiative of 15 members of the insurance industry, launched in October 2016 to explore the potential use of the distributed ledger technology and develop common standards for the industry. Members are Achmea, Aegon, Ageas, Allianz, Generali, Hannover Re, Liberty Mutual, Munich Re, RGA, SCOR, Sompo Japan Nipponkoa Insurance, Swiss Re, Tokio Marine Holdings, XL Catlin and Zurich Insurance Group.
The prototype, which has been developed over the past 3 months, has the potential to radically simplify how the insurance industry does business. With this step, B3i members and the greater market are able to see how it all comes together. The system covers the major elements of the Property Cat XL reinsurance contract life cycle (i.e. smart contract setup, premium settlement and claim settlement).
The rise of big data – or, as some are starting to refer to it, smart data, continued to receive an increasing share of the reporting. The advent of artificial intelligence (AI), the Internet of Things, robotics and big data is transforming global economic systems and, in turn, revolutionising risk assessment and underwriting through the use of machine learning algorithms, Tim Yeates, managing director of Axco, told Monte Carlo Today.
“We’re no longer talking about digital strategy, we’re talking about strategy in a digital world,” Yeates said.
Axco has released a white paper on the impact of the ‘fourth industrial revolution’ on insurance. Yeates believes the digitisation of insurance will increase efficiencies. Advanced imaging technology, for example remote sensing satellites orbiting the Earth, have increased in resolution exponentially, which in turn has become an integrated part of risk assessment. This can be seen with Munich Re’s NATHAN (Natural Hazards Assessment Network).
Real-time data and machine learning can now facilitate live premium readjustments of claims forecasts based on the outcomes of different scenarios, the white paper stated. Furthermore, the report claims the digitisation of insurance underwriting may reduce back office costs and contribute to a lower combined ratio, and the claims ratio may be improved by the reduction of costs.
“The fourth industrial revolution is an increasingly digital world. It is connecting machines, but it is fundamentally moving knowledge, data and information from anywhere in the world.”
The impact of the upcoming General Data Protection Regulation is starting to appear on insurers’ radars. Some insurers are implementing only the minimum data protection standards as required in a jurisdiction—but this approach will cause problems for them, according to Darren Wray, CEO of consultancy firm Fifth Step.
In preparation for the implementation of the onerous General Data Protection Regulation (GDPR) in Europe in May 2018, a number of global insurers have opted to adhere to arguably lower required standards in other jurisdictions such as Bermuda or the US, Wray said.
This may help insurers reduce costs. However, at the same time, this lowers their ability to be flexible to send and process data elsewhere, where data protection rules are less stringent. Organisations in breach of GDPR will face significant penalties.
Companies can be fined up to 4 per cent of annual global turnover, or €20 million ($24 million), whichever is greater. Arguably the biggest change to the regulatory landscape of data privacy comes with the extended jurisdiction of the GDPR, as it applies to all companies processing the personal data of data subjects residing in the EU, regardless of the company’s location.
In other news, it was reported that new UK regulations designed to enable an insurance-linked securities (ILS) market in the London Market could have the potential to be a game-changer for parts of the ILS markets but much still depends on how the Prudential Regulation Authority (PRA) adopts and embraces the concept, with the regulator having the potential to make or break the market.
The industry (re)insurance claims news focused, of course, on the recent hurricane season leaving a trail of devastation in its wake across the Caribbean and U.S. mainland. According to an Aon Benfield report released during the conference Hurricane Harvey came ashore in Texas on August 25, becoming the strongest hurricane to make landfall in the US since 2004.
Catastrophic flooding across a broad section of eastern Texas and into southern Louisiana has caused significant property damage and disrupted industrial production and supply chains. Aon Benfield reported that it is already clear that economic losses will far exceed insured losses. As a result, the burden will ultimately fall mainly on US taxpayers. This is the latest manifestation of a global protection gap.
Meanwhile, insurance product delivery has lagged the changing needs of corporate buyers in developed markets and personal lines coverage of natural disaster risk remains patchy. In emerging markets, insurance penetration rates generally remain very low. On a global basis, emerging areas of risk such as cyber are presenting the insurance industry with new challenges.
At a wider industry level, Aon Benfield estimates that global reinsurer capital stood at a peak level of USD605 billion at June 30, 2017, an increase of 2 per cent relative to the end of 2016. Recent years have seen a significant build-up of industry capital, as more stringent rating agency and regulatory requirements have coincided with low inflation and an absence of significant reinsured catastrophe losses in the US.
The (re)insurance industry conference season will now move on to Baden Baden in October. There will of course be much discussion of how recent extreme weather events are likely to impact pricing in the next 1st January renewal season.
Before then, however, DOCOsoft will be in attendance at the Insurance Insider London Market Conference on the 2nd of November 2017. Over 400 delegates will gather to network and debate the major issues affecting the London market. Attendees will hear from a variety of industry rainmakers, together with experts and inspiring leaders outside of the (re)insurance industry.
Be sure to seek us out and see how through strategic partnership we can provide a claims solution that will overcome any challenges you face today or in the future. As one of the sponsors and active participants, DOCOsoft will be hosting clients and insurance industry leaders in our own private room at the event where we will be exhibiting our latest insurance and claims thinking. To find out more about the London Market Conference, please click on this link http://www.insiderlondonmarketconference.com/