Cutting Through Hype Around Blockchain & DLT
The Institute of Risk Management [IRM] Bermuda Group and EY Bermuda Ltd. recently hosted an event focused on distributed ledger technology [DLT] and its potential use across the reinsurance industry, as well as current challenges to its broader adoption.
The forum – titled “Cutting through the Hype around Blockchain and DLT” – took place on April 21 at XL Catlin, and brought together professionals from across the Bermuda reinsurance sector.
Jonathan Groves, Chairperson of IRM Bermuda Group, introduced the presenters, Chris Maiato, Advisory Leader and Katya Gorbunova, Advisory Senior Manager, both of EY Bermuda Ltd. [EY], who spoke about blockchain’s transformational potential in moving from master ledgers of data to distributed ledgers with no intermediaries, effectively eliminating the need for a trusted central authority for transactions.
The EY team also elaborated on use cases of blockchain in financial services and explored the current state of global initiatives.
“Blockchain technology has the potential to enable new applications that will radically change how many reinsurance transactions take place,” said Mr. Maiato. “As the industry continues to grapple with the potential and challenges associated with DLT, it’s critical that organizations, regulatory authorities and standards bodies continue to foster discussions.”
In addition to the EY presentation, Claus Walter from Zurich Insurance Company walked through a DLT prototype based on actual use cases for [re]insurance smart contracts. The demonstration showed how DLT could provide a trusted process for completing a contract within standardized parameters.
Walter highlighted efficient contract setup and execution, lean contract settlement and maintenance and improved capital efficiency as key potential benefits.
A panel discussion, moderated by Mr. Maiato and including Mr. Walter, Ujjval Patel, Vice President of Strategy at ACORD, and Gavin Woods, Counsel at Appleby Bermuda, focused on the opportunities and challenges of DLT implementation for the [re]insurance industry.
According to Mr. Patel, between 30 to 40 percent of ACORD members are currently undertaking initiatives involving blockchain.
Panelists agreed that DLT could help eliminate non-value adding tasks within reinsurance processes, such as multiple manual steps in contract signing. Highlights from the discussion:
- Mr. Woods stated that given the multi-jurisdictional nature of the technology, legal and regulatory aspects need to be carefully considered.
- Mr. Patel cited potential barriers to blockchain adoption, including standards for data exchange, organizational challenges and collaboration between market players, noting that internal work needs to be done to alleviate stresses being placed upon the technology.
- Mr. Walter touched on the impact of DLT adoption on the brokerage market, adding that certain services provided by brokers, such as price benchmarking, will still be required. In other cases, the technology may provide more efficient ways for selecting partners and negotiating contracts between counterparties, thereby reducing the role of the broker.
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Focusing specifically on the Bermuda market, Mr. Woods compared the role of regulators in blockchain to the one they currently play in approving new insurance companies.
IRM and EY Bermuda held an online survey with forum participants to gauge their existing understanding, experience and attitudes toward DLT.
Approximately 65 percent of participants indicated that their organizations are closely monitoring the development of DLT within the industry, while more than 21 percent are seriously investigating the possibility of implementing blockchain technology in their organizations.
Respondents felt that the most immediate benefit of blockchain would be in the area of policy administration, followed by claims and payments processing.
Participants cited regulation and legal risk [44 percent] and lack of industry standards [22 percent] as the biggest barriers to wider blockchain adoption.
Finally, when asked which factors will play the most critical role in further development of blockchain within reinsurance in Bermuda, the majority identified collaboration between market players [66 percent], followed by successful use cases of blockchain in other jurisdictions [22 percent] and a favorable regulatory framework [11 percent].
To receive an invitation to future blockchain events, contact the IRM Bermuda Chapter at irmbermuda@gmail.com.
