PwC reports big potential for blockchain in corporate and wholesale insurance markets

PwC’s UK operation sponsored a report produced by London financial think tank Z/Yen in July, on the potential use of blockchain technology in the wholesale insurance market. PwC concluded that it sees huge positive potential for the wholesale insurance market and not just personal lines or the alternative risk transfer market such as catastrophe bonds and insurance-linked securities. PwC’s annual Global FinTech survey found that some 22% of insurance, asset and wealth management business is at risk of disruption from financial technology firms and developments.hideThe firm reports that almost three quarters of insurance leaders who took part in the survey believe that insurance would be the most disrupted industry. “Meanwhile, complex processes with multiple interactions, duplication of data entry and risk of fraud slows down traditional players’ ability to react,” states PwC. But this is where blockchain potentially comes riding over the horizon to the rescue. “As customers increasingly expect a personalised value proposition, blockchain could be the solution, with more reliable and secure data available faster [and] more cheaply, while reducing risk and fraud,” states PwC. And the sector is fast waking up to this challenge and opportunity, according to PwC. The consulting firm points out that annual investments in InsurTech startups have increased fivefold during the past three years, with cumulative funding of InsurTechs reaching $3.4bn since 2010. “Blockchain technology could empower people to manage (some of) their risk more directly, with peer-to-peer and mutual insurance platforms based on blockchains,” states PwC. Blockchain has the potential for “modernising, streamlining and simplifying the siloed design of the financial industry infrastructure with a shared fabric of common information”, it adds. PwC estimates that more than $1bn has been invested in blockchain companies since the technology’s creation in 2009, with a 59% increase in the last year. The firm says it has seen clients exploring this technology in a number of areas including claims management and history, brokerage and commissions, to subrogation and automation of placement workflow and settlement. Brokers in particular need to work out how to use this technology to help customers or else they could well be squeezed out, based on PwC’s findings. “Many of our clients are exploring blockchain’s potential to disintermediate, increase speed and reduce cost while increasing resilience in their businesses,” states the firm. Business applications Examples of blockchain’s business applications in the insurance sector include the key area of claims management. PwC says blockchain could enable pay for redress in a more effective and efficient manner, with benefits including: Placing the customer in control, such as with the management of the relationship with service supplier. Enhanced transparency and reduction in opportunity for fraud. Improved service and flexibility, such as through the issuance of an e-voucher for a selection of service providers. PWC also believes the technology could be used for subrogation. Blockchain could provide a shared mechanism for insurers to use to manage the subrogation process and handle inter-company claims. The benefits of this would include: Enhanced efficiency and reduced costs through shared, distributed processing and data management. Increased speed of settlement. Increased resilience through no single point of failure. Policy placement is another potential area of use, according to PWC. The firm believes blockchain could be used to automate the placement of wholesale markets. This has a number of potential benefits, including: Reduction in duplication of data entry. Information remains current and accurate and available in a timely manner. Automation of workflow reduces manual processes. Indelible audit history and record of agreement and acceptance. But as with all new technological advances, this needs to be handled with care, warns PwC. “Blockchain is an exciting new technology with huge potential to disrupt and improve numerous industries. But it’s not the answer to everything. Understanding which use cases you should pursue requires business understanding and technology knowledge,” concludes the consulting firm. This project does not stop with the survey that PwC carried out with Z/Yen. The two firms announced the launch of a ‘Long Finance’ research project into the potential of blockchain technology in wholesale insurance. PwC and Z/Yen say that by bringing together a range of wholesale brokers, insurers and reinsurers to create a common view of the potential benefits that blockchain could bring for the study, they would be able to identify priority business ‘use cases’ and develop a roadmap for future developments. PwC says it will work with Z/Yen to co-develop the report and will use its newly established blockchain research laboratory in Belfast, Northern Ireland to develop the prototype ‘proof of concept’ technology. PwC partner Steve Webb, who leads the UK’s financial services blockchain practice, says: “With a new technology like blockchain, it is fundamental that you work in an agile way to prove that the technologies not only work, but provide the right solutions to specific business problems. Businesses need to build, learn from mistake refine and improve. PwC’s Belfast laboratory team are experts in this way of working and, by working alongside PwC insurance experts and the Z/Yen team, we are confident and excited that we will be able to unveil a working prototype alongside the written report.”

PwC reports big potential for blockchain in corporate and wholesale insurance markets

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