Blockchain is changing industry; cryptos have further to go
The use of blockchain is already having a very positive effect on many parts of the industry, but cryptocurrencies must stabilise and solve challenges around privacy before they can play any meaningful role, David Edwards, CEO of ChainThat, told Monte Carlo Today.
Edwards said the more exciting development that would play a central role is blockchain. “For enterprise B2B, cryptos are not quite ready for insurance and reinsurance,” he said.
The challenges for cryptocurrencies are that they are largely unregulated, their value is very volatile, and there are issues around privacy.
“Insurance contracts need to be done privately,” said Edwards. “Other parties shouldn’t be able to look at them. On blockchain, the data is available, even if it is encrypted. The metadata is always there.”
Edwards said blockchain technology has matured rapidly in the context of insurance. It is now being used in distributed ledger and smart contact technologies adopted by the various blockchain consortia. He noted that the consortia are all using private enterprise blockchains.
He added that blockchain has the potential to add value in claims. ChainThat recently completed a distributed ledger technology (DLT) prototype focused on claims agreements, with an emphasis on the London Market. It highlighted areas where DLT could bring efficiencies to processing and enhanced benefits to insured clients.
For widespread adoption of blockchain, Edwards believes the brokers must drive this, as they have the close client relationships.
In the near term, he sees blockchain reducing costs and impacting expense ratios in the next one to five years—and targeting frictional costs that are impacting companies’ bottom lines.
“Lloyd’s of London for example has an expense ratio of about 42 percent. If you can bring that down drastically, you can get a more attractive combined ratio,” he concluded.
David Edwards, ChainThat, Blockchain, Technology, Insurance, Insurtech, Monte Carlo 2018, Cryptos, DLT, Global