Industry Technosavvy the November 2017 issue

One Truth

Q&A with Jayant Khadilkar, Global Head of Analytics and Technology, TigerRisk Partners
By Michael Fitzpatrick Posted on October 27, 2017
People tend to connect blockchain with cyber currencies like bitcoin, but in what other ways is the distributed ledger technology being put to work today?
In situations where there are multiple parties involved in a transaction, distributed ledger technology (DLT) can help create a single “truth.” For example, processing a trade in the financial industry involves multiple parties, their IT systems and multiple departments across those trade participants. Processing the transaction over distributed ledger technology offers significant efficiencies over current practices. Instead of copying the data and storing it in multiple databases, processing with DLT can be validated and time stamped to confirm that all parties are recording the same messages. That saves significant amounts of duplication of effort as well as errors and reconciliation. We’re looking at that as at least one of the uses.
For insurers and reinsurers, are we still in the testing phase for the technology?
Absolutely. I haven’t come across any full application that’s in production or being used across a specific type of business. However, there are pilot projects under way. The R3 consortium is in the process of working on three or four pilot projects in insurance. There are a couple of other examples. AIG and Standard Chartered did a project using a specific type of distributed ledger technology called hyper ledger fabric, working with IBM to create a commercial insurance master policy. Allianz did a pilot project to create a smart contract using distributed ledger technology for catastrophe swap contracts. All of these are pilot projects. I’m not sure there’s anything that’s in production or being widely used.
How do you see distributed ledger technology being used in insurance going forward?
My personal perspective is that the low-hanging fruit is back-office efficiency gains.

When a transaction gets executed in insurance and reinsurance, there are multiple parties—especially in reinsurance, it is usually a multiparty transaction. By using distributed ledger technology, we can avoid counterparties’ recording their own version of “the truth” on their systems and then having to deal with the inefficiencies and complexities and reconciliation. All that can be eliminated if distributed ledger technology is used to recall the transaction; that then can be used by multiple parties. That is the near-term application of this technology.

How will the technology impact areas such as claims?
Claims follow contracts. When a contract is executed between different parties using a DLT framework, then all parties that are involved now have access to that, and only authorized parties can make a change. As soon as a change is made, then every party that is on that distributed ledger gets notified of that change. In theory, you could put claims as one of the nodes on that distributed ledger, and as soon as a claim occurs, it triggers a payment that then gets notified to everybody that’s on the ledger. That may be a little far out. One way that may happen soon is a claim gets notified to the ledger by the party experiencing the claim and as soon as that happens everybody on that distributed ledger gets notified that there was a claim. Ultimately, that’s connected to payment systems or banks. If DLT verifies that it is a legitimate claim, and all parties on the network agree to that, then that claim can be paid directly as well without any manual intervention, without any duplicate data entry.
Can those claims be tied to a parametric trigger?
That’s a lot easier. Those are what’s called self-executing smart contracts. Once you agree to that smart contract, as soon as an index triggers, like the PCS Catastrophe Loss Index or another index like what New Paradigm is doing with wind, then the entire process happens through the ledger automatically in terms of payments and everything.
Can you tell us about your participation in the R3 Centre of Excellence and how this will expedite the spread of distributed ledger technology in the industry?
At TigerRisk, we are focused on staying on top of technological developments. There are a couple of different aspects to our participation in R3’s Centre of Excellence. First, we can stay abreast of the developments in the DLT world through the R3 consortium. As a member of the consortium, we have access to all the projects that are done by the consortium, all the research materials and other information.

Second, we can work with R3 to solve some specific issues, such as bringing efficiency to the back-office process. R3 has a DLT platform called Corda, and we are working on a prototype using that platform to see if we can create this DLT framework to improve back-office efficiency. That is a two-pronged approach from our perspective. It’s staying on top of the developments—and R3 is a great resource for that because the consortium includes many banks and insurance companies—and then doing this private project work with them to create efficiency in the back-office processes.

How will DLT affect brokers going forward?
In the near term, I’ll come back to these efficiency gains. There is a significant amount of pressure on brokers to improve efficiency in their back office that creates significant savings with a direct impact on the bottom line. It creates a very efficient and trusted process where you don’t have any of this reconciliation or any errors. From a client perspective, that’s a great thing. If a client is working with a broker that’s using this technology, that’s in the best interest of the client. Now, the process is safe; it’s secure; it’s trusted and it happens quick. Clients become part of that distributed ledger. They have visibility and can see what is going on rather than having to wait to hear from a broker.
Is there a wider impact?
Everybody at TigerRisk is excited about this technology and its impact. Technology is an enabler for innovation. If we can take away mundane tasks from humans, they can focus on innovating new products and new ideas. Technology like this can replace that very easily, and that’s one of the key reasons for us to be involved.


Michael Fitzpatrick Technology Editor Read More

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