The use of blockchain may help to overcome issues of trust between parties where there is a potential conflict of interest, and its use may even command a higher premium on contracts where the payment of a claim is automated, Magdalena Ramada Sarasola, senior economist at Willis Towers Watson, suggested to Baden-Baden Today.
The re/insurance industry has big expectations for the potential of blockchain to increase the efficiency and reduce the costs in the sector. The technology enables a network to have a single version of a record or document containing all previous changes so there can be no misunderstanding or missing information. The technology also produces a secure environment and allows for the selective distribution of information.
The Blockchain Insurance Industry Initiative, aka B3i, has estimated that a move to blockchain—a single, secure distributed ledger platform accessible to all parties in a financial transaction—would take up to 30 percent of the frictional costs out of writing reinsurance business.
But Ramada argues that, in addition to reducing these frictional costs, blockchain can also offer a new level of certainly and security between parties and automate the payment of claims based on certain triggers—something especially useful where there is a lack of trust or a potential conflict of interests between parties.
On blockchain you can have smart contracts that no-one controls and which cannot be tampered with, she explained.
“You can automate that contractual relationship in a place where you no longer own it and neither does the other party. That is the new part,” Ramada said.
Often, clients won’t trust the underwriter and doubt that the claim will be paid, she explained. “People are willing to pay a premium for the fact that the policy, once the terms are agreed, is no longer under the sphere of influence of the underwriter,” she said.
A similar situation may exist in commercial lines where multiple parties may have a conflict of interest in relation to a liability. With blockchain, neither party will be able to interfere in how the policy is executed, Ramada explained.
Baden Baden Reinsurance 2018, Europe, Magdalena Ramada Sarasola, Willis Towers Watson, Blockchain, Insurtech, Technology, Global