Europe’s biggest insurer Allianz has stated it has successfully tested the use of smart contracts to improve natural disaster bond settlements.
Also read: PwC to Study Blockchain Technology for Wholesale Insurance
Allianz Cuts Cost with Smart Contracts
The news was announced following a partnership with Bermuda-based investment management firm Nephila Capital, which specializes in reinsurance risk and so-called catastrophe (CAT) bonds.
Together, the two parties are aiming to streamline and cut costs when it comes to executing CAT bonds following unforeseen disasters. Specifically, smart contracts could allow settlements between insurers and investors to be executed faster and automatically without middle men.
“Blockchain technology would increase reliability, auditability and speed for both cat swaps and bonds as less manual processing, authentication and verification through intermediaries is required to confirm the legitimacy of payments/transactions to and from the investors,” Richard Boyd, Bermuda-based Chief Underwriting Officer of Allianz Risk Transfer stated in an accompanying press release issued Wednesday.
CAT bonds are designed to only incur payments when a specific set of criteria are met, which are predefined by the invested parties beforehand. With smart contracts, however, the process of arranging and securing the immutability of terms is made much more efficient, Allianz says.
“Each validated contract on the open shared infrastructure contains data and self-executable codes inherent to that contract,” the press release continues, adding:
When a triggering event occurs which meets the agreed conditions, the blockchain smart contract picks up the predefined data sources of all participants, and then automatically activates and determines payouts to or from contract parties.
More Heated Competition
The Allianz-Nephila partnership looks to extend beyond this one use case. Wider applications of blockchain tech in the insurance sphere are already being researched, with Allianz citing multiple-step payment transfers as an example of a process which could be transformed.
“Blockchain is obviously a fascinating technology and we are starting to explore the use of it in several fields,” Head of Disruptive Technology Michael Eitelwein stated.
Allianz has been eyeing the Blockchain’s potential for some time. In December 2015 its French subsidiary, Allianz France, included Blockchain startup Everledger in its startup accelerator program. Everledger then had to opportunity to work in partnership to explore Blockchain tech as a distributed registry for the diamond trade.
Nonetheless, the insurance market is already alive with competitors considering the potential to update legacy processes. PricewaterhouseCoopers announced this week that it is starting its own joint research into Blockchain use cases, having also partnered with startups in the space including Blockstream and Digital Asset Holdings.
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Images courtesy of allianz.com, Getty images, versicherungsmonitor.de