International Business Machines Corporation (IBM) announced in a press release CoinReport received that it, along with American International Group Inc. (AIG) and Standard Chartered Bank plc, has successfully delivered the first multinational, “smart contract”-based insurance policy using blockchain, a distributed ledger technology.
The blockchain solution creates a new level of transparency and trust in the underwriting process, allowing Standard Chartered and AIG to accomplish multinational coverage more expeditiously. Coordinating placement and management of various insurance policies across multiple countries is highly complex. Created by IBM, the pilot solution is based on Hyperledger Fabric – a blockchain framework and one of the Hyperledger projects hosted by The Linux Foundation.
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The three corporate giants collectively transformed a multinational, controlled master policy written in the UK, and three local policies in Kenya, Singapore and the US, into a “smart contract” that offers a joint view of policy documentation and data in real-time. It also enables visibility into coverage and premium payment at the master and local levels and automated notifications to network partakers after payment events. The solution also demonstrates the capability to add third parties in the network, such as auditors, brokers and other stakeholders, providing them with a customized view of policy and payment documentation and data.
These three jurisdictions were selected because the US is a large and complex market, Singapore is a growth market for Standard Chartered and Kenya has a particular regulatory requirement, called “cash before cover,” which means that cover must be paid for before it is valid.
“We chose these three territories because of their importance to Standard Chartered and also because of their regulatory complexity, so that we could fully test how blockchain technology might make these contracts work more efficiently,” said Emily Jenner, head of Insurable Operational Risk at Standard Chartered.
Rob Schimek, CEO of Commercial, AIG, stated, “Our pilot proves blockchain has a powerful role to play in the future of insurance. Any technology, including blockchain, that can increase trust and transparency for an industry whose pillars are built on that, should be fully explored. We’re excited to be delivering innovation that matters to our clients – and co-developing key components of this new technology together.”
To better comprehend the potential of blockchain to reduce friction and increase trust in the other areas of the insurance value chain, the three corporations selected to carry out this enterprise in one of the most complicated areas of Commercial Insurance – multinational risk transfer.
According to the press release we received, this is how it works:
- Blockchain, a transparent, immutable and security rich joint digital ledger offers a single view of truth across all participants while delivers selective visibility to players based on their credentials.
- It allows recording and tracking of events and associated payments in each country associated with the insurance policy.
- Without the agreement of others on the network, no one party can modify, delete or even append any record.
- This degree of transparency assists in reducing errors and fraud, in addition to the necessity for the parties to contact each other to view policy and payment data and the status of policies.
“As a global bank we have to ensure consistent, trustworthy and secure financial transactions, be that as part of our business or as customers ourselves,” said Standard Chartered’s Jenner. “By creating a process by which we can arrange multinational insurance contracts through blockchain we not only have transaction security but contract certainty across multiple business locations.”
IBM Blockchain general manager Marie Wieck commented, “There is tremendous opportunity to apply advancements in blockchain technology to transform the insurance industry. By creatively leveraging smart contracts to help address tough regulatory requirements across different markets, we are seeing the enormous impact blockchain can have to improve efficiency and open up new business models.”
Images courtesies of respective corporations via PR firm Ketchum