Ep.18 – Insurwave: the complete story with EY
In one of our previous episode, Insurwave – a Maersk pilot for marine blockchain insurance, we introduced Insurwave, a new marine blockchain insurance platform launched by EY, Guardtime, Microsoft, Willis Tower Watson, XL Catlin, MS Amlin and ACORD and piloted by Maersk.
This week we are joined by Shaun Crawford, Global Insurance Sector Leader at EY and one of the founders of Insurwave. We will be discussing the complete story of Insurwave, from Proof of Concept to launch.
Blockchain in two minutes
A blockchain is a series of blocks of continuous records, where a previous block is effectively a cryptographic copy of the information from the preceding block. The blockchain is managed autonomously using a peer to peer network, meaning that the whole network will know if a peer makes a change to the blockchain. Therefore, everything has to be authenticated. This leads to a live, immutable audit trail.
Insurwave is the first product of Insurwave Ltd, a joint venture between EY and Guardtime, a blockchain company whose experience ranges from the NHS to the US Air Force. It is a blockchain platform linking the shipping industry with the brokers, the insurers and reinsurers. At the moment it is focused on providing hull and war cover.
Insurwave is built on the open source version of Corda (See Corda’s latest announcement). The reason for this choice is that Corda is a very mature and privacy-focused blockchain. In other blockchains every peer has access to all the data on the blockchain. Insurwave, however, deals with sensitive company information and requires certain data to only be accessible by certain peers, making Corda the best choice.
Building Insurwave required looking beyond the insurance industry. Guardtime was chosen both for its expertise in blockchain and its range of experience. Gathering a group including shipping, insurance and technology leaders created a team capable of critically examining existing processes to build a new product from the ground up.
The first step in building Insurwave was to create a PoC. This revolved around ten use cases and considered how blockchain can improve efficiency and reduce costs. In doing that, it was always important for Insurwave to be a new proposition, a completely new business model, rather that a digitisation of existing processes. Insurwave has been an opportunity to re-imagine how the underwriting process would be in the future and how claims handling could become more efficient. The end result is that Insurwave can improve cost efficiency by at least 40 per cent.
As the insurance industry isn’t particularly known for embracing change, building a completely new platform can be challenging. What made Insurwave feasible was having a small team. Having just one shipping company, one broker, an insurer and a reinsurer ensured that the team could examine all facets of the insurance industry while also remaining flexible.
Creating an immutable audit trail and seamlessly sharing data between parties has the potential to improve existing practices in numerous ways.
1. Bring risk closer to capital
For shipping companies like Maersk, a major benefit of Insurwave is that it allows them to bring risk closer to capital. In the traditional model, shipping companies have an enormous amount of data that is not being used when the insurer prices a journey. Insurwave can provide the insurer with this data in a structured manner, allowing them to have more certainty, better quantify the risk and provide a better price. The data will also be helpful to brokers, who can use it to look for the right type of insurer and provide a more compelling service.
2. Improve the title process and claims handling
Having an immutable audit trail means the title process will become easier and more efficient. All the relevant data will be found at one place, speeding up the process significantly.
3. Solvency II
Insurwave also has the potential to help insurers by bringing down Solvency II capital requirements. Presently, because of how the market operates, there is no link between risk and capital and a high level of capital is required under Solvency II.
However, if insurers have access to a lot more data points, such as IoT devices on ships, to help them quantify the risk, capital requirements can be reduced. As insurers can better quantify the risk, less capital would be required by the insurance company on the balance sheet to support that leverage. While that is a long-term goal of Insurwave, and regulators will require at least a few years to understand the link between risk and capital requirements, it is a goal Shaun is confident Insurwave can achieve.
Critics could argue that if premiums and capital requirements are reduced while ships and cargo are getting more expensive, the reduced premiums and capital requirements will not suffice to cover for a disaster. Insurwave’s answer is that all the new data available on the blockchain can lead to better decision-making. More information about the ship will become available, such as when it was last serviced or its cargo levels. Information about routes, such as weather and congestion, will also be available to help underwriters cover risks more accurately.
Insurwave’s next steps
The current Insurwave model is ready to be adopted by more clients. The pilot with Maersk has been very encouraging and other shipping companies have shown interest in joining. Insurers have also expressed their interest and many are joining Insurwave at the moment.
In terms of functionalities, Insurwave is currently focused on hull and war cover. Its top priority is making Maersk’s pilot a success. Following that, extra functionalities are planned for sometime around October, with cargo insurance being a potential area.
In the long term, Insurwave is also looking beyond marine insurance. Aviation is a potential field as the airline industry has shown an interest in blockchain but Shaun stresses that Insurwave’s current focus is Maersk’s pilot and building on that experience.
It is also worth noting that Insurwave is open to working with other platforms, whether they are on the Corda blockchain or not. For example, Maersk is also working with IBM’s Hyperledger Fabric on a logistics supply chain project, which could be a suitable partner for Insurwave. At the moment, however, it is too early to speak of interoperability and data exchanges between different blockchains.
Shaun has been working on Insurwave since day one, making him well-suited to give anyone interested in blockchain some advice on how to embark on their blockchain journey and evaluate the stability of their business processes.
1. Work on your PoC
The PoC stage proved to be a challenging aspect of building Insurwave. The team had to reconstruct their concept numerous times to get it to work. For that reason, it is important to start small and build up from that.
Once a PoC is ready, it is important not to announce too fast. Insurwave was actually initially considering a different solution. In hindsight, Shaun is thankful they waited until they had a working pilot as Insurwave is now in a better direction.
2. Work with your ecosystem
Having Maersk on Insurwave’s team was an invaluable asset. It ensured Insurwave was built tailored to client needs and ready to provide a value adding service. Additionally, having a broker, an insurer and a reinsurer on the team means Insurwave has been built using feedback and input from the whole industry. This has made Insurwave a well integrated platform to be used by the whole industry, proven by its popularity with shipping companies and insurers alike.
3. Be business driven
When working with blockchain it is easy to become too focused on the technology and miss the practical side of things. While it is necessary to understand the technology behind the solution, Shaun stresses the importance of first designing a business solution and then using the technology to implement it.
4. Structure your data
There is a lot of data in the insurance industry and blockchain is well placed to take advantage of this. Before this is possible, however, the data must be constructed in a format that can be used by the blockchain. One of the first steps, therefore, is to digitise the data and ensure it is structured correctly so it can be used effectively in the blockchain.
Shaun shares some insider perspective on how Insurwave came to be, the challenges it faced along the way and its goals for the future.
If you liked this episode please do review it on iTunes. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Shaun a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.
Thank you Shaun!