Getting to grips with blockchain
We asked Dr. Sebastian Rath, Principal Insurance Risk Officer, NN Group, about his journey in risk management, and how he came across blockchain as a future trending topic for insurers. Sebastian spoke on Getting to grips with blockchain at Risk Minds Insurance, March 19.
How did you start your career?
For my PhD thesis I developed methods to analyse big-data and automate the building of catastrophe risk models for very large regions, notably for flood models. At this time, it became possible to build national models based on satellite imagery together with laser-based topographic data. I was active in various European research projects, spoke at international conferences, and realized that insurance markets are key beneficiaries of such models.
After developing commercial catastrophe risk models that are being uses by most global (re)insurers, I wanted to get hands-on in insurance. Hence, I started modelling and reinsuring catastrophe risks globally. The following financial crisis and the emergence of Solvency II allowed me to broaden my client work, and I focused on the use of capital models and corporate risk management strategy.
What was your lightbulb moment, when you realized that blockchain may become a ‘big thing’?
In 2015 I immersed myself into the various movements that explored decentralized ledgers (blockchains). On the early use of digital currencies I had my doubts tough. For blockchain, I could see how data governance, data use and modelling could benefit customers if smart contracts would be adopted across industries using joint ledgers.
In your personal view, how could ‘insurance powered on blockchain’ look like?
My session at RiskMinds Insurance explored this point. We concluded that collaborative approaches are effective for testing and designing, and especially when we look at how customers of the future can benefit from the use of decentralized ledger technologies.
There are plenty of product initiatives being explored and trialed in InsurTech at the moment. Therefore, the session focused on the stewardship that the insurance market will need to develop to fully bring those trials to a larger-scale success. For now, adopting individual success stories requires much testing before we expect larger market adoption.
We also discussed that B3i is currently focusing on the second half on the insurance risk transfer chain, mostly on the reinsurance risk governance and workflow. Practically, this leaves the use of primary insurance products and customer services in scope for future work. We explored in more detail three particular value chains. Those are likely to be key to future successes for modern insurance risk carriers:
- For insurance risk carriers seeking to embrace insurance services and products for the Internet-of-Things, it’s key to build truly value-adding offers. In a way that will make true differences for customers, that can be adopted easily, can be used seamlessly, match the customer’s needs, and that are transparent in their use of data, costs and benefits. The use of blockchain can facilitate meeting some of these requirements as we look at connecting IoT devices and services.
- General insurance risk carriers have an opportunity to shape how we manage climate volatility. Here the insurance market might advocate the benefits of considering decentralised ledgers. Measuring, monitoring and communicating climate volatility is a central debate since the Paris Climate Convention. Globally, it impacts livelihoods, informs the vulnerability of our insured and uninsured exposure. Likewise, risk mitigation strategies are becoming more important for climate risks. Decentralized ledger technologies lend themselves to record and exchange trusted information describing these impacts. Climate Change Oracles could inform the public as well as insurers on weather anomalies that we can attribute to climate change effects. This could be for temperatures, weather pattern, their impacts on storms, floods, droughts. Over longer terms, those could inform us on the local impact of climate change on our societies. A key to success is the management of Climate Oracles and decentralized ledgers, by trusted authorities, such as those managing our national and regional statistics with verified scientific data. For insurance risk carriers, this information may serve as validation data layers, on which general insurers could build tooling for more informed decision making in the times of climate change. This may support the product innovation on the area of climate and weather risk transfer.
- Lastly, digital health insurance will probably be a value chain in its own right. Many individuals currently experience the benefits of advanced treatments. Science exploits a wealth of data that we can track and compare as individuals. Health systems and insurance have vested interests in the fair usage of this information. Blockchains are likely to be useful in bringing together data sources. This requires that we, as societies, with our governments, regulators and companies, establish sound stewardship models. The use of this sensitive data must develop in ways that complies with our local laws. It should be anonymized from us as individuals, but could in some cases be permissioned to supported the development of fair science and advanced developments of treatment plans. We could envisage that individuals may grant carefully permissioned uses of their health status and benefit from a fully transparent personal health status report. Such developments may lead to improvements in facilitating treatment, inform medicines and cures, and support science. Countries and their health systems are actively setting roadmaps for this valuechain. As society we may debate how we want to shape our options of realizing such benefits, which will determine if and how private and public decentralized ledgers play a role.