The first blockchain marine insurance transaction, between shipping company AP Møller-Maersk and insurers MS Amlin and XL Catlin, was the topic of debate at an event in London today
Insurwave, the first marine insurance transaction to use blockchain smart contracts, was the topic of a breakfast briefing event in London this morning.
AP Møller-Maersk is the first within the maritime sector to use cloud-based blockchain distributed ledger technology for its insurance buying needs.
The shipping company partnered with insurance broker Willis Towers Watson, insurers XL Catlin and MS Amlin, auditor and risk advisor EY, and technology firms Guardtime, Acord and Microsoft.
Insurwave’s backers said since going live in May it would support more than half a million automated ledger transactions and help manage risk for more than 1,000 ships in its first year.
The platform’s backers want to expand it to further commercial insurance lines, including cargo, property, aviation and energy business.
Lars Henneberg, Maersk’s head of risk management, and Claes Westman, the shipping firm’s head of marine insurance, spoke at the City event (pictured).
Risk management benefits
Henneberg described traditional insurance as “very cumbersome” for risk transfer, and the gap between risk and capital as “very long”.
Too much time has previously been wasted on inefficient administrative processes for buying insurance, he complained.
“We had been spending 75% of our time on insurance contract administration and 25% on insurance management,” said Henneberg.
“Being more cost effective” is his priority, he continued, adding that using the blockchain platform for smart contracts would make buying cover “more accurate and dynamic”.
Maersk could make insurance cost savings of perhaps 5-10%, Henneberg said, putting a $10m estimate on transactional savings.
“This will contribute significantly to reducing costs in our business,” he added.
Being able to transmit live data via blockchain would also bring risk management benefits, he suggested, as data analysis gets closer to real-time.
“It helps us with risk management”, Henneberg said, “when we can see in realtime when the business starts behaving like a claim.”
Blockchain would help Maersk move towards seeing insurance as more of an extension of its risk management function, he suggested, as well as adding more value to insurance, capital and risk advisory tasks.
Maersk has two blockchain initiatives, he noted: one with IBM for its core trading activities, which he regards as “strategic”; and the Insurwave platform, which Henneberg described as “tactical”.
Henneberg credited the Insurwave project as a “concrete use case” for blockchain.
His colleague Westman, and other panellists, elaborated about some of the lessons learned during the project.
“You innovate while you look into this,” said Westman.
He suggested a phased preparation for such smart contracts, with some aspects of the data prepared first, while looking into how to manage other data.
“Start early. The computing is quick, but you have to give us time,” continued.
Willis Towers Watson GB’s head of strategy and planning, Charles Stewart, noted for some large firms, embracing blockchain remains a daunting prospect.
“There’s tendency for large corporate processes to squash this sort of thing – not because they want to, but because of the glut of people involved,” said Stewart.
Bill Pieroni, CEO of Acord, suggested the biggest – perhaps fatal – lessons would be for companies with business models that ignore emerging technology trends. “It’s absolutely a Betamax moment,”
Pieroni warned that cautious risk managers and conservative insurers can be allergic to change and to risk, despite the necessity of embracing both forces.
“We’re in the risk management industry and we hate risk!” he said.
Within a short time, many blockchain initiatives may blossom, suggested Paul Taffinder, director of strategy and innovation at MS Amlin suggested.
“That will be a good thing,” he said. “We need to see more leadership and vision,” he added.
Some blockchain initiatives will be more successful than others, Pieroni noted.
“There will be mistakes,” admitted Pieroni. “That doesn’t mean you can wait, because it will be too late.”
The insurers and brokers on the panel agreed about the need for transparency and a desire to learn.
“You have to be open to innovation, open to each other, and willing to listen to move things forward,” said Helene Stanway, digital leader at XL Catlin.
Jamie Steiner, financial services general manager at Guardtime, added: “It’s been said that blockchain is a solution waiting for a problem to solve, but we’ve found no shortage of problems to solve.”