Cracking silos between insurers and asset managers: a Fintech solution

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Financial institutions are fenced within a regulatory terroir. Europe is a multi-lingual continent with less than half a dozen currencies and more than two dozen legal & economic jurisdictions. Wilkommen y benvenuto. Financial regulations in Europe can fill a library, if there was an audience for it. But I cant foresee any aficionados, so it is only the stakeholders affected that care about the MIFIDs and all other regulations protecting customers and economies that depend on financial service providers.

Regtech is one of the areas that Fintechs have focused on; using technology to address efficiently and cost effectively the needs of financial institutions for regulatory compliance. This is actually a broad area and includes challenges like data security, reporting accuracy, on-time delivery, and capability to identify relevance and applicability (to name a few).

Insurance companies are not immune to the tsunami of regulations even though payments and fund management have been more on the spotlight.

New Solvency II is one of the main regulations to come into effect in 2016, that will require insurers to identify underlying holdings in any funds they own. More than 4000 European insurance companies are affected. Deloitte reports that European insurance sector represents more than 42% of the fund industry; the insurance sector is actually a larger client than pension funds (36%).

Asset managers have been happily serving insurance companies because they are typically large, relatively sticky pockets of money, with a long-term investment horizon. Solvency regulatory framework has been around since 2013 but it has been proven very difficult for insurers to comply simply because most asset managers don’t have the capability to provide the granular data needed. The main requirement of this regulation is the “Look-through” principle which demands that asset managers provide their insurance clients sufficient data of their holdings so that risk metrics can be calculated associated with the Solvency Capital Requirement (SCR).

Insurers have been paying a high cost because they end up being charged (increased capital requirements – type 2 equity) on each of the underlying assets that they dont comply (i.e. calculate SCR). In simple words, if “Look-through” isn’t achieved, then the insurer ends up with higher capital adequacy requirements and with more stringent risk requirements (counterparty exposure limits and increased liquidity levels). As a result, insurance companies are out on the look for the Asset managers and asset service providers that can live up to the new standards of the solvency regulation. In effect, insurance companies are forced to choose asset allocations and risk exposures, based on the SCR calculation’s. As long as those calculations are distorted because of the lack of data, insurance investment decisions are suboptimal.

Luxembourg and Dublin, the two large fund centers of Europe, have decided to create an alliance and do something about this issue that affects insurance companies, asset managers and asset servicers. The Luxembourg Stock exchange created a consortium in 2010 that has evolved into Fundsquare that started operating about 2yrs ago as a user owned subsidiary of the exchange with expertise in fund technology. At the same time, in Dublin the Moneymate Group, a fund data technology group, launched a Fintech and SilverFinch was born. Silverfinch, is a Regtech utility for “Secure Data Sharing” to allow asset managers handle the look-through requests from their Insurance Company investors.

In late 2014, Silverfinch and Fundsquare partnered to accelerate the ability of European asset managers to service the needs of the insurance sector with regards to Solvency II demands. Once again Luxembourg is rolling out a “tapis rouge” on a bridge linking asset managers serving insurance companies.

The adaptation is a work in progress since it involves a multi-jurisdictional web of multiple financial assets. Silverfinch manages over $2.5 trillion of client assets (reported as of Oct 2015). Their value proposition is focused on data ownership and security, while providing the necessary reporting requirements for Solvency II.

The need to open a secure channel of communication between insurers and the asset managers that invest the premia collected by insurance company providers, is clearly a one-way street. Data flows from asset managers to insurers, solely for reporting purposes but of course, risk measures and capital requirements are determined from the data.

Imagine a flip flow of data: Insurers providing their asset managers with their customer related data. Anonymous but valuable data that can be turned into investable insights from Fintechs in the Big Data business. Which Fintechs can be a bridge between asset managers and insurers, to transform the structured data available to insurers, into investable insights that the asset managers serving them can have privileged access to? Looking for a flipped SilverFinch.

Which asset managers are exploring the possibility of exploiting data from their insurance clients? Looking for asset managers testing insurance provided data sets, to extract hidden value.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Efi Pylarinou is a Digital Wealth Management thought leader.

 

 

30,000 Foot Look at InsurTech

 

Guest Post by Matteo Carbone

30k foot

The insurance sector is undergoing a profound change. Digital transformation has become a major challenge for insurance companies all over the world. In Italy, this transformation is exemplified by the adoption of vehicle telematics. According to the latest IVASS data, black box became an integral part of 15.5% of new policies and auto renewals during the third quarter of 2015.

 

The insurance sector is now seeing the same dynamics already experienced in many other sectors, including financial services: with startups and other tech firms innovating one or more steps of the value chain traditionally belonging to financial institutions. InsurTech has seen investments of almost $2.65 billion coming in during 2015 compared with $0.74 billion in 2014. Similar to FinTech in 2015, it’s now InsurTech’s turn to define the elements to be included in the observance perimeter, this being a main point of debate among analysts.

 

In my opinion, all players within the insurance sector will have to become InsurTech-centered in the coming years. It’s unthinkable for an insurance company not to pose the question of how to evolve its own model by thinking which modules within their value chain should be transformed or reinvented via technology and data usage. Realizing this digital transformation can be achieved by building the solutions in-house, by creating partnerships with other players—both start-ups and incumbents—or through acquisitions.

 

Based on this view that all the players in the insurance arena will be InsurTech—meaning organizations where technology will prevail as the key enabler for the achievement of strategic goals—the way to analyze this phenomenon is via a cross-section view of the customer journey and the insurance value chain. This mental framework, which I regularly use to classify every InsurTech initiative—whether it’s a start-up, a solution provided by established providers or a direct initiative by an insurance company—is based on the following macro-activities:

  1. Awareness: Activities that generate awareness in the client—whether person or firm—regarding the need to be insured and other marketing aspects of the specific brand/offer;

 

  1. Choice: about an insurance value proposition, which, in turn, are divided into two main groups:
    1. Aggregators, who are characterized by the comparison of a large number of different solutions;
    2. Underwriters, who are innovating the way to construct the offer for the specific client, irrespective of the act to compare different offers.

 

  1. Sales/Purchase: Focuses on innovative ways in which the act of selling can be improved, including collection of premiums;

 

  1. Use of the insurance product: clarifies three very distinct steps of the insurance value chain: policy handling, service delivery—which is acquiring an ever-growing significance within the insurance value proposition—and claims management;

 

  1. Recommendation: Part of the customer journey which is becoming a key element in the customer’s experience with a product in many sectors;

 

  1. The Internet of Things (IoT), we can include in this category of activities—transversal to the activities described above—all the hardware and software solutions representing the enablers of the connected insurance (the motor insurance telematics is the most consolidated use case);

 

  1. Peer-to-peer (P2P): Initiatives that, in the last few years, have started to bring peer to peer logic to the insurance environment, in a manner similar to the old mutual insurance.

 

Based on my interpretations of the evolution of the InsurTech phenomenon I would say:

  • on the one hand, there is a tendency towards ecosystems in which each value proposition becomes the integration of multiple modules belonging to different players

 

  • on the other hand, the lines between the classical roles of distributor, supplier (coming even from other sectors), insurer and reinsurer are getting blurred.

 

In a scenario like this, the balance of power (and consequently the profit pool) among various actors is bound to be challenged and each one of them may well choose to collaborate or compete depending on context and timing.

 

Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech.

 

The InsurTech Spectrum – the 7 colours of digital innovation

 

rainbow_5997cBy Rick Huckstep

It is almost a year since I published my first post on Daily Fintech. The subject was simply ‘where’s the Insurance Tech in Fintech?’

I had just been to a Fintech innovations awards dinner in the heart of London, the spiritual home of insurance. Of the nominated Fintech’s, only one was an insurance business. This was Bought By Many, who, rather ironically as the only insurer there, they went on to win the award for Fintech Innovation of the Year!

One year on and InsurTech is now established in a class of it own; no longer a sub category of Fintech.

In 2015, $2.65bn of VC money was invested in InsurTech. We now have InsurTech focused accelerators with the excellent Startupbootcamp in London, the Global Insurance Accelerator in Des Moines, USA (about to start it’s second cohort), and Mundi Lab announcing its startups for their insurance program in Madrid.

Insurance startups around the globe are bringing digital innovation and new business models to insurance. And about time too!

Since that first post a year ago, I have interviewed more than 50 InsurTech startups and for most of them, I have written their story. From this research into the background, purpose and intent of the startup, common themes have appeared.

From Distribution to Data, the spectrum of InsurTech

Red – Distribution

Distribution is all about making insurance easier to buy, consume, understand and relevant. They put the customer first and build their insurance proposition from the customer out (unlike incumbents who organize their business around internal capabilities).

These startups are all about the customer and their propositions are characterized by convenience, on-demand, personalization and transparency (and of course, digital).

Examples include;

  • Bought by Many
  • Knip
  • Cuvva
  • Insquik
  • PolicyGenius
  • Moneymeets

Orange – Enterprise

Here we see a new breed of enterprise class software providers. These are Software as a Service platforms running on the cloud. They have consumption based pricing models that replace the traditional $million up front licence fee and multi-year implementation.

In the main, these InsurTech’s have taken hold of the SMB space but it is a matter of time before they prove themselves as genuine enterprise solutions for tier 1 insurers.

Examples include:

  • Vlocity
  • Zenefits
  • Insly
  • Surely
  • Riskmatch

Yellow – Mutual

New peer 2 peer business models return insurance to its roots of mutualisation and community. The model relies on the notion that social grouping and affinity will change behavior and address moral hazard (thereby reducing claims payouts and premiums).

The question of scalability still hangs over P2P insurance but if it succeeds as a business model, it could form the foundation of a new breed of insurer. Just as kids call to their parents in their hour of need, customers will call to the insurer in theirs.

Examples include:

  • Friendsurance
  • Guevara
  • TongJuBao
  • Lemonde
  • Uvamo
  • Gaggel

Green – Consensus

Blockchain technology will fundamentally change the way the insurance industry works (as well as banking and society as a whole IMHO).

The promise is huge although as yet, unproven. From smart contracts to identity authentication, from fraud prevention to claims management, blockchain technology will provide the underlying technology foundations for a trustless consensus that is transparent to all parties.

Examples include;

  • Everledger
  • Tradle
  • SmartContract
  • Dynamis
  • Blockverify

Blue – Engagement

For me, this is the most significant of the characteristics from InsurTech in personal lines. Here the product becomes integrated in the customer’s lifestyle. It becomes sticky and overrides the annual buying exercise where price is the key buying criteria. Digital natives are responding well to lifestyle apps that sit on top of the underlying insurance product.

Examples include;

  • Vitality
  • Trov
  • Oscar

Indigo – Experience

The true value of insurance is only realized when the customer makes a claim. New tech solutions that improve the customer journey through the claims process will not only improve the customer experience, they will also reduce the cost of claims and claims payouts.

Examples include;

  • 360Globalnet
  • RightIndem
  • Tractable
  • Vis.io
  • Roundcube

Violet – Data

This is all about new sources of data to rate and underwrite risk. This is about using data science, machine learning, artificial intelligence and high performance computing to process data in completely new ways.

Whilst Distribution is vital to change the way customers interact with insurers, it is the data players that hold the key to fundamental change in the way insurance is manufactured.

Examples include;

  • Quantemplate
  • Analyze Re
  • Meteo Protect
  • The Floow
  • Fitsense
  • Influmetrics
  • RiskGenius

What’s missing?0005027_prismfoil-rainbow-unicorn

So far, we have not seen a new entrant creating a completely new business model for an insurance carrier, but we will, the promise has already been made!

Meanwhile, incumbent insurers have a sense of protection behind two major barriers to entry for new players – capital adequacy and regulation.

IMHO, this will show itself as a false sense of security over time.

The UK’s FCA is leading the way in embracing innovation with Project innovate and the creation of the regulatory sandbox. Cynics might say it will never work; time will tell, but I don’t think so. Regulators around the world watch the FCA and will follow their lead.

As for capital adequacy, this is a huge obstacle, but not so huge that it cannot be overcome. Capital has shifted and the traditional sources are being replaced. It is entirely feasible that new sources of capital will fund new insurance business models built on new tech. Interesting times!

Au Revoir!

This is my last InsurTech post for the Daily Fintech.

It has been my pleasure to work with Bernard and Efi to produce fresh and relevant content every week for the past year. I will be forever grateful to Bernard for inviting me to write for Daily Fintech.

This is a great team with tremendous insight and experience in the world of Fintech.

Finally, I would like to thank the people who have read my posts on Daily Fintech, and especially all those who have left comments, whether they be good, bad and indifferent!

Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech.

Riskgenius – the Google of Insurance Policies

By Rick Huckstep

In the world of commercial insurance, brokers and agents are reviewing policy agreements in their evenings and at weekends. These contract reviews are consuming masses of labor, are time consuming and open to error. This isn’t a small cost to the industry either. The 150 largest Independent Agents alone employ around 500,000 people with half of them in admin roles. There has to be a tech solution to this…let me introduce you to Risk Genius – the Google of insurance policies!

The issue is this. Insurance professionals across the world are struggling with contract reviews.  And this inefficient process is impacting underwriters, agents, and brokers alike.

The industry is full of anecdotes of professionals reviewing contracts at the weekend whilst they’re “watching” their kids at soccer school. Or of agents reviewing contracts for customers in their travel time between workplaces. And of product underwriters who simply do not have the time to review all of the contracts they are sent.

Let me put this into context with a simple Use Case

Today, commercial insurance brokers and agents need to review insurance policy agreements when advising clients on their insurance requirements. They do this by comparing different policy agreements and documenting the comparisons in a ‘like for like’ format in a spreadsheet format.

This is a manual review process. The agent or broker often does this as a side task, out of office hours, at home in the evenings or the weekend.

And here’s the rub. It’s a thankless task that is time consuming, repetitive, and open to human error. It also relies heavily on human decision-making in less than perfect circumstances. This is cause for concern for insurers from the associated risk and exposure of giving bad advice based on a poor contract review process.

This is where RiskGenius comes in.RGlogo_988p_Web_Mixed_Stacked

To tell me how they plan to transform the commercial P&C industry, I Skyped with co-founder and CEO, Chris Cheatham. Better known on social media as the ‘Dr Dre of the Insurance Industry”, Chris is an attorney by trade with a love of rap music, science fiction and machine learning technology. Chris has already established a successful startup in ClaimKit, a collaboration platform for claims management in the surety, insurance and legal space.

Over the course of an hour, Chris explained to me how he and his co-founder, Dan Burchett designed and built a platform that applies machine learning to the review process for commercial insurance policies.

“Its been a tough nut to crack and taken a lot of hard work and effort”, according to Chris, who gives all the credit for the technology solution to Dan, who’s more Tony Stark than your typical CTO.

What we do is take an insurance policy and load it up onto the RiskGenius platform. First, it is analyzed and indexed, which takes a minute or two. We’ve written algorithms that can break down and understand an insurance policy. And, just like Google, RiskGenius will look at the content, organize it and make sense of it. We use the algorithms to categorize and structure the content of the policy documents so that they can be reviewed. The output is a simple to understand and review policy, and the user can export out results in a spreadsheet format.

“We’re going through the same process as the agents. It’s just that RiskGenius is reading the text faster and applying more rules using machine learning technology.”

The purpose of RiskGenius is really clear. This is a solution that benefits the Insurance agencies.

As Chris told me, “a key challenge for insurance agents is sales. How do they go get business in a competitive marketplace?  RiskGenius is their best tool for fixing this. First, we take the pre-existing policy. By reviewing it with others, the agent can see the gaps in the cover and the weaknesses in the policy conditions. Now, the agent can explain these gaps and help the commercial client to get the right cover for their commercial business. Up until now, this has been time consuming. But with RiskGenius, the sales agent can process the policy very quickly and then go and explain any shortcomings.”

And this is not the end of it, because once a contract has been indexed and cataloged then the fun starts. Now agencies and brokers can start to build libraries of policy agreements across their client base and within the firm. It is common for many variations in policy wording for the same terms and conditions. These are often unnoticed and hard to review in their entirety across the firm. With RiskGenius, agents can comment on and review multiple variations of similar clauses with clients and with the agency to establish the most favorable for all parties.

RG-UI-DOC-04.10.1-Compare

RiskGenius is about to go live in February and this week they secured $1.8 million in series A fund raising from lead investor Flyover Capital (reported here on Startland News, Kansas City’s Home for Innovation News).

The approach they take will significantly increase the speed, consistency and accuracy of the contract review process.

Quite simply, RiskGenius are using technology as an alternative to hard labor and in so doing; they reduce the contract review process completion time from days to minutes.

As Chris says, “Can you imagine why anyone would manually review contracts in 5 years time?”

The author, Rick Huckstep is an InsurTech thought leader. Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech.

 

 

What’s the point of InsurTech (and what are the incumbents doing about it)?

 

By Rick Huckstep

Earlier this week, a packed house attended a TechUK meeting in central London under the heading “Insurance Disruption”. The stage was shared by two insurers, three startups and a global SI. This was a coming together of the established and the emerging worlds of insurance and InsurTech. The subject: digital innovation and the transformation of the insurance industry.

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Deconstructing Insurance

InsurTech will replace digital on the CEO agenda”.

A bold statement to open the meeting and arguably already true. Present tense not future!

The meeting was held at TechUK, a body that represents the UK’s technology industry. And it was excellently marshalled by Nigel Walsh, Head of UK Insurance for Capgemini.

The audience was predominantly from the supply side of the insurance industry – vendors, consultants, suppliers. And they had gathered at the TechUK offices just off Fleet Street to hear the views of innovators from established carriers and emerging startups in this world of InsurTech.

For summaries of the meeting, including photos from the stage, go here for Nigel’s, and also here to read the perspective from Greg Brown, Founding Partner at Oxbow Partners.

In the “Established” corner was Martin Pluschke of Ergo and Serge Taborin of Aviva Garage. Both facing the challenge of how to bring digital innovation and transformation to a large and complex organization that is massively hampered by legacy and a culture of “this is how we’ve always done it!”. These challenges are well reported in this excellent 2015 report from KPMG, subtitled, ‘The insurance innovation imperative’.)

Of course, the established insurers do have a few things working in their favor, such as plenty of resources, money, experience and, above all, customers…16 million of them in Aviva’s case!

In the opposite corner and representing the “Emerging” world were three startups from the Startupbootcamp InsurTech cohort that started two weeks ago – RightIndem, massUp and Fitsense, featured here on Daily Fintech last October. (If you go to Greg’s post, he includes a short profile on all three startups.)

 

Digital is in the DNA of the startup

Whilst they might be short of a few bob and hours in the day, the startups are free of legacy and able to focus totally on the customer experience. They also “get” digital from the outset. These are common themes I have seen from interviewing over 50 InsurTech startups in the past year.

As Nigel Walsh said in the FT on Monday; “Customers are getting more savvy. Expectations have gone up but insurers are not meeting those expectations.”

It’s a point well made without much resistance from the industry. But it isn’t all bad for the established players. With the high cost of regulation being a significant barrier for new entrants, insurance is far less likely to experience uberization than many other industries.

And to quote David Moschella of the Leading Edge Forum in his report Disruptive Innovation comes in Waves; “Technologies that sustain incumbents can enable just as much societal progress and change as those led by new firms.”

Cannibalisation

Clearly, the notion of eating your own lunch doesn’t effect the emerging players, but it certainly does for the established. Rather timely, I noticed this comment today in an article on Pymnts.Com. It was made by American Express CEO and Chairman Kenneth Chenault at a retail conference last week in NYC.

He said; “you need to be focused on customer needs,” while embracing a process that may even include “cannibalising yourself.”

The fact this is from the boss at Amex is irrelevant; the point is that established players across many industries should accept cannibalisation as an intended outcome of their innovation agenda.

Which is why you see insurers dividing themselves into “run the business” units that are completely separate from “build the business” units. This is a strategy that removes the burden of legacy for those who are tasked to build new ways of working. And an invitation to eat their own lunch!

Investors, Innovators and Transformers

When I look at the incumbents, I see three different strategies for embracing the InsurTech world of the startup.

Figures just released from CB Insights reported that investment in InsurTech in 2015 was $2.65bn. And no doubt it will be reported as high, if not higher in 12 months time. One group of investors contributing to the figures is the established insurance carriers themselves.

I call these “The Investors” and they include the likes of Mass Mutual Ventures and Commerz Ventures who are investing directing into InsurTech startups. This is a VC model where the investments are targeted at insurance businesses.

Then we have “The Innovators”. These are the established insurers who are getting involved in the startup landscape through accelerator programmes, bootcamps and hackathons. They seed their own innovation people directly into the startup support ecosystem, mixing with the emerging InsurTechs outside the walls of the established insurer.

They include carriers such as Munich Re/Ergo who are active at Startupbootcamp and the soon to start Mundi Labs insurance accelerator in Madrid (where I mentor on both programs, excuse the shameless plug).

The Startupbootcamp Executive in Residence is Martin Pluschke, mentioned earlier, and he is one of the most enlightened people I know from the established insurance world. He really gets digital innovation and is an asset to both Ergo and SBC.

Also in this category are carriers such asDirect Line Group and  Generali, with their Innovation Challenge in collaboration with Microsoft. Here they focus on three defined market problems and invite startups to pitch solutions to solve them using the Skipsolabs platform.

Finally, we have “the Transformers”. This is the class of established insurer that creates the digital innovation lab approach inside their own walls. Innovating from within, insurers are investing in their own digital innovation and transformation capabilities by hiring expertise from the outside.

The defining characteristic of the Transformers is that they give the innovation team a direct line to the CEO’s office. The corporate governance process and policies are (largely) set aside so that the innovation team can work unencumbered by internal bureaucracy.

A great example is Aviva, where the 5 person leadership team for the Digital Garage’s in London and Singapore report directly into CEO Mark Wilson.

Of the other major global insurers classed as Transformers, I include;

For the final word on this, I quote Dr.Thomas Blunck, member of the management board of Munich Re;

We can’t wait for the structural changes to occur before we start moving; we need to address these changes now if we hope to offer the business new growth opportunities over the next 5 years.”

For me, this quote sums up the call to action agenda for the insurance incumbents in the digital age.

The author, Rick Huckstep is an InsurTech thought leader. Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech.

 

 

What does the future hold for blockchain and insurance?

By Rick Huckstep

Blockchain, Blockchain, Blockchain! What does it all mean for Insurance? No one knows yet, but that doesn’t stop blockchain being one of the hottest topics for the Insurance industry right now. This week, I take a look at the direction this puck is heading.

blockchain-1200x651

(photo source: followmyvote.com/the-proof-is-in-the-blockchain)

Hype or reality?

Last September, the World Economic Forum published a report entitled, Deep Shift – Technology Tipping Points and Societal Impact. The report is based on surveys with over 800 executives and experts about new technologies and innovations. The point of the report is to identify deep shifts in society that result from new technologies. These include areas such as 3D printing, driverless cars, wearables and artificial intelligence.

I was drawn to shift number 16, simply called “Bitcoin and the blockchain”. By 2025, 58% of these experts and executives believed we would hit the tipping point for Bitcoin and blockchain. This was defined as;

“10% of global gross domestic product will be stored on blockchain technology”

To put that into context, the total worth of Bitcoin today in the blockchain is circa 0.025% of today’s $80trillion global GDP.

Also of interest, especially given that it looks like Tunisia will be the first country to issue a digital currency on a blockchain, shift number 18 was called “Governments and the blockchain”. Here, almost 3 out of 4 of the survey group expected that “Governments would collect tax via a blockchain by 2023”.

It’s a reality then!

It’s certainly looks that way. And $500m of VC money in 2015 can’t be wrong, can it?

The prospect of a seismic shift on a par with the impact of the Internet is massively compelling. Which explains all the attention, predictions and excitement about blockchain. But, if we use the evolution of the Internet as a benchmark, the development of blockchain today for commercial use is equivalent to the Internet in, say, the mid 1990s’ at best.

The debates on with or without Bitcoin, private or public blockchains, Sybase vs Oracle (oops, wrong century) are yet to play out. The ability of the Bitcoin blockchain to scale to handle massive volumes at lightening speed remains unproven.

Now, just as it was in 1995, blockchain technology is at an embryonic stage. Still finding its way; yet to prove it is a viable, industrial strength, large-scale technology capable of solving world hunger.

Which is why I am going to focus on the use case for insurance, rather than the technology itself. (For one explanation of how Blockchain works, go to Wired, here.)

The Smart Insurance Contract

This is getting most attention right now. The notion of automating the insurance policy once it is written into a smart contract is compelling. The idea that it will pay out against the insurable event without the policyholder having to a make a claim or the insurer having to administer the claim has significant attractions.

First, the cost of claims processing simply goes away. Second, the opportunity for fraud largely goes away too. (I hesitate on this one simply because it is theoretical and not yet proven). Third, customer satisfaction must go up!

One example being used to illustrate how these might work came from the London Fintech Week Blockchain Hackathon last September. Here a team called InsurETH built a flight insurance product over a weekend on the Ethereum platform.

The use case is simple. In the twelve months to May 2015, there were 558,000 passengers who did not claim for delayed or cancelled flights in and out of the UK. In fact, less that 40% of passengers claimed money back from their insurance policy.

They built a smart contract where the policy conditions were held on blockchain. Using the Oraclize service to connect the blockchain with the Internet, publicly available data is used to trigger the insurance policy.

In this case, a delayed flight is a matter of fact and public record. It does not rely on anyone’s judgement or individual assessment. It is what it is. If the event occurs, the smart contract gets triggered and the pay out is made. Automatic and immediate, with no claims processing costs for the insurer and satisfaction for the customer.

Building on this example and applying it to motor, smart contracts offer a solution for insurers to control claims costs after an accident. The trigger that there has been an accident would come from a smartphone app or the connected car via the Internet to the blockchain. Insurers are always frustrated when customers go a more expensive route for repairs, recovery and car hire. So, with a smart contract, insurers could code the policy conditions to only pay- out to the designated third parties (see related article by Sia Partners).

So long as the policy conditions are clear and unambiguous, and the conditions for paying out are objective, the insurance can be written in a smart contract. When the conditions are undeniably reached, the smart contract pays out. As blockchain startup SmartContract put it, “Any data feed trusted by a counterparty to release payment or simply complete an agreement, can power a smart contract.”

To understand this better, I asked Joshua Davis, the technical architect and co-founder at blockchain p2p InsurTech Dynamis to explain it to me, “you need well qualified oracle(s) to establish what “conditions” exist in the real world and when they have been “undeniably reached”.  An oracle is a bridge between the blockchain and the current state of places, people and things in the real world.  Without qualified oracles there can be no insurance that has any relation to the world that we live in.   

“As far as oracles go you can use either a single trusted oracle, who puts up a large escrow that is lost if they feed you misinformation, or many different oracles who don’t rely on the same POV or data sources to verify that events occurred.

“In the future social networks will be the cheapest and most used decentralized data feeds for various different insurance applications.  Our social networks will validate and verify our statements as lies or facts.  We need to be able to reliably contact a large enough segment of a claimant’s social network to obtain the truth.  If the insurance policy can monitor the publishing or notification of our current status to these participants and their responses accurately confirm it, then social networks will make for the cheapest most reliable oracles for all types of future claims validation efforts.”

Is this simply too good to be true?

Personally, I don’t think it is. Of course, a smart contract doesn’t have to be on the blockchain to deliver this use case.

However, what the blockchain offers is trust. And it offers provenance. The blockchain provides an immutable record and audit trail of an agreement. The policyholder does not have to rely on the insurer’s decision to pay them damages because they’ve broken their promise to keep them safe from harm. As the WEF report states, this is an “unbreakable escrow”. The insurer will pay out before they even know about it.

There’s another reason for going with the blockchain – cybersecurity!

With the blockchain sitting outside the corporate firewall and managed by many different and unconnected parties, the cyber criminal no longer has a single target to attack. As far as I’m aware, blockchain is immune to all of the conventional cyber threats that corporations are scared about.

What happens when you put blockchain and P2P Insurance together?

In December, I published a 2-part article on Peer 2 Peer Insurance (here are the links to Part 1 and Part 2). When you bring the P2P model together with the blockchain, this creates the potential for a near-autonomous self-regulated insurance business model for managing policy and claims.

Last year, Joshua Davis wrote an interesting white paper called “Peer to Peer Insurance on the Ethereum Blockchain”. In the paper, he presents the theory behind blockchain and the creation of Decentralized Autonomous Organizations (“DAO”). These are corporate entities with no human employees.

The DAOs would be created for groups of policyholders, in a similar way to the P2P group model of the likes of Guevara and Friendsurance. No single body or organization would control the DAO; it would be equally “controlled” by its policyholders within each group. All premiums paid in would create a pool of capital to pay claims.

And because this is a self-governing group with little or no overheads, any float at the end of the year would be redistributed back amongst the policyholders. Arguably, this makes the DAO a non-profit making organization and materially increases the capital reserve for claims costs.

The big question mark for this model is regulation. Who will maintain the blockchain code with in each DAO when regulations change does not yet have an answer. But, what does seem a dead cert is that someone, somewhere is figuring out how to solve this.

Blockchain offers the potential for new products and services that have never existed before in a P2P insurance model. It should also open up insurance to whole new markets, especially those on or near the poverty line.

For now, we watch to see what comes from the likes of Dynamis who are using smart contracts to provide supplementary employment insurance cover on Ethereum.

Innovation will come from new players

It has been my belief for some time that, in the main, incumbent insurance firms will not be able to materially innovate from within. Like Fintech, the innovation that will radically change this industry will come from new entrants and start-up players, such as;

Dynamis

SmartContract

Rootstock

Everledger (see previous article on Daily Fintech here)

Tradle

Ethereum Frontier

Codius (Ripple Labs) (update: Codius discontinued)

This is particularly true with blockchain in insurance. These new age pioneers are unencumbered by corporate process, finance committees, bureaucracy and organisational resistance to change.

Besides, the incumbent insurance CIOs have heard this all before. For decades, software vendors have promised nirvana with new policy admin, claims and product engines. So why should they listen to the claims that blockchain is the panacea for their legacy IT issues. Which is a subject for another post… watch this space!

The author, Rick Huckstep is an InsurTech thought leader. Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech. 

LiveMed – When Digital replaces Physical for the human touch

By Rick Huckstep

Digital solutions have replaced many tasks and actions. But sometimes, nothing beats a face-to-face interaction with a customer. This week, I look at a solution from Silicon Valley start-up LiveMed. Using a VideoTech platform, LiveMed replicates the physical experience with a digital one.

Signing-ContractLet me tell you a story that happened last year. I’ll skip the detail, other than to say, I was required to confirm my identity and sign a document by a department in a financial institution.

With my passport and utility bill in hand, I went in search of a branch (which isn’t as easy as it used to be, even in Central London). It didn’t help that the fax machine at the first branch I found was out of order and I had to go find another one.

Which I did, and after much back and forth on the phone between the department, the branch and me, we completed the process and I was on my way. This whole episode cost me several hours of inconvenience.

What struck me at the time was how “out of date” this institution was. Not just technically or digitally, but also in terms of customer experience. And it was completely unnecessary.

Digital FinTechs and InsurTechs have been onboarding new clients in less than 10 minutes without any physical interaction. Identities can be proved and verified in a matter of minutes with back ground checks, a photo of your passport and a selfie.

The use of eSignatures is widespread. In the United States, the Electronic Signatures in Global and National Commerce Act is a federal law to facilitate the use of electronic signatures in commerce (long form definition on Wikipedia here).

In the European Union, the equivalent regulation is the Electronic Signature Directive (see Wikipedia reference here) that defines the use of eSignatures in electronic contracts within the EU.

Both of these legislative frameworks require the same thing, which is that electronic signatures are regarded as equivalent to written signatures.

Last month, I wrote about the use of VideoTech in the claims handling process (can-video-restore-trust-for-both-insurer-and-insured-when-making-an-insurance-claim). In that piece, I talked to InsurTech startup Vis.io about their use of video technology to both reduce cost for insurers and improve the customer experience for claimants.

logo_finalEPSThis week, I move to the front end of the insurance process; client onboarding and policy administration, and talk to LiveMed. To tell me how their solution brings together the use of video, customer identification and eSignatures, I Skyped with Silicon Valley based Co-Founder and CEO, Yair Ravid.

Yair explained to me that “LiveMed is a platform that allows financial institutions to confirm customer identity remotely, collect signatures remotely and provide a video record of the customer engagement.”

The way it works is simple.

When a face-to-face discussion is required, the insurer emails a link to the customer. This can be for events such as to confirm a customer’s understanding of the insurance policy conditions or to witness their signing of all parts of the policy agreement.

The customer activates the link and they are connected via a live video to an insurance agent. The agent is able to use the LiveMed platform to conduct a secure, face-to-face discussion with the client. The platform allows for documents to be shared between the two parties, which they can both review and amend in real time, before both parties sign electronically and the document is locked down.

The whole session is recorded and kept for several years in case a customer disputes the policy conditions or that they even signed the policy all together. (If you are interested in an example of a policyholder disputing an electronic signature, read this article in Insurance Journal about Bonck v White.)

Knowing whom you’re talking too

Whilst digital facial recognition technology (and other biometric measures) are advanced and sophisticated, humans remain better at visual identification. And in some jurisdictions, they remain the only option as biometrics are not yet permitted for identity verification.

“Humans understand the face holistically” according to this study entitled “The Limits of Facial Recognition” by Tim De Chant. And visual identification still carries great weight in the process of verifying a customer’s identity and in fraud detection. Humans are better at assessing if we are who we say we are, or if our claim is suspect.

There will always be occasions when a face-to-face meeting is required to complete a transaction. LiveMed enables this human interaction without requiring the customer to go into a branch. Or, an insurance agent visiting their home.

More than a VideoTech platform

Behind the video interaction, LiveMed’s algorithms verify the authenticity of documents supplied by the customer. Yair told me; “when a customer brings in a fake document, we have a high success rate at identifying if it is a fake. We’ve developed a solution that takes real IDs, studies different parameters against them and then compares these with the documents being presented. The institution still relies on human judgment, but LiveMed gives the agent a reliable tool to help with the decision process.”

Screenshot 2015-12-17 13.26.40

The LiveMed platform uses webRTC, an open source platform that provides browsers and mobile applications with Real-Time Communications (RTC) capabilities via simple APIs. It also runs as a cloud or an on -premise solution to cater for an institution’s specific requirements and policies on security, data, and technology.

It is a device independent platform that delivers both mobile and web. Yair explained; “we’ve worked hard to make this very easy to use for the customer. Simply click on the link, go online with the agent, finalize or review the document, open the signature box and then sign with their finger. Simple!”

“We take any format document or webpage, whatever, and turn them into a series of pictures. This allows changes, sketches and amendments on the screen by both parties, real time. Then these pictures, or pages, are locked and put together and sent to both parties as a record. We are patenting the technology because we believe it to be unique.”

The old fashioned ways are no longer viable

Asking a customer to come into a branch carrying paper just isn’t going to cut it anymore. Nor is the cost of sending a representative to meet the customer. In this digital, mobile age, time is precious and money is tight.

We are also in the consumer protection age of regulation. Financial institutions need to be able to prove beyond doubt that their conduct is acceptable. That customer’s fully understand the financial decisions they are making.

This requires evidence that both parties can rely on should there be a dispute. (see my previous research notes on RecordSure and their use of AI for compliance monitoring).

With LiveMed, the finance institution “sees” the person in real time without the inconvenience or cost of a physical in-person meeting. And because the transaction is completed there and then, the insurer doesn’t have to wait for documents to be sent and processed. And both parties can be certain there are no mistakes (right first time) because everything is checked and verified on the video call.

What next for LiveMed?

Yair is one of three co-founders who bootstrapped LiveMed and took the start-up through the UpWest Labs accelerator in Palo Alto. LiveMed have now raised their first $400k from seed funding on their way to raising $1.5m series A. The MVP is built and in pilot with several financial institutions and the new funding will enable them to launch the platform into the US financial services market.

The author, Rick Huckstep is an InsurTech thought leader. Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech.