American International Group Inc. (AIG) and Standard Chartered Bank have introduced an insurance policy based on blockchain. The distributed ledger technology, which has been dubbed ‘smart contract’ was undergoing tests for some time, and will zero in on multinationals.
AIG has joined forces with IBM, which built the pilot solution based Hyperledger Fabric, to augment blockchain for insurance cover policy, in addition to streamlining intricate types of policies in the insurance industry.
As stated, blockchain is ideally a distributed ledger that has gained popularity based on its foreseeable potential in terms of innovation in financial services. In most cases, the solution is popular in some banking institutions where blockchain use cases have been identified. At the same time, it has been discovered that the technology offers potential use scenarios in the insurance industry such as innovating insurance products and services for growth, boosting efficiency in pricing models and fraud detection as well as cutting down on administrative costs. Based on these applications, insurers may finally get rid of setbacks such as cost reduction pressures and unsustainable growth in mature markets.
“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,” said Marie Wieck, General Manager, IBM Blockchain.
AIG, IMB and StanChart have worked together to cover new grounds using a master policy that was formulated in the UK, along three other policies in the U.S., Singapore and Kenya. This was motivated by the need to convert the policies into a ‘smart contract’ that offers a common view of policy data and documentation in real-time.
“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,” said Rob Schimek, CEO of Commercial, AIG.
While the insurance industry is yet to catch up with the banking industry in terms of technology adoption, it is nevertheless among the industries that stand a chance to gain from distributed ledger technology. What’s challenging for this adoption is that the three organization have ventured into one of the most challenging areas of Commercial Insurance, and that is multinational risk transfer.
“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. 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,” says Emily Jenner, Head of Insurable Operational Risk at Standard Chartered.
As a recap, the primary policy was based in London, U.K. for trial, and three polices were selected for Singapore, U.S. and of course, Kenya because of its ‘cash before cover’ policy that insists on paying for cover before it is valid.