Members of B3i, a consortium of insurance companies developing distributed-ledger technology (DLT) for the industry, intend to transform the group into a company in order to commercialize the products it will soon move into development.
That’s according to Fei Zhang, head of blockchain and group enterprise architecture at Allianz, and Allianz’s representative in the consortium.
The purpose of Blockchain Insurance Industry Initiative, as B3i is formally known, is to use DLT to make the value chain among industry participants more efficient, by cutting costs. The development team is based in Munich, reflecting B3i’s European origins, and uses Fabric, the DLT built by IBM within the open-source Hyperledger framework.
Its first prototype, a property catastrophe contract, has been deemed viable by using fictive data, and will be ready for live deployment in 2018. Under the status quo, post-contract processes are manual and idiosyncratic, with a lot of effort going into reconciliation. This creates risk and cashflow inefficiencies. DLT should eliminate the need for reconciliation and automatically sync updates among all participants.
Cut costs, add value
This first product involves contracts between insurance companies and their reinsurers, as well as insurance brokers. But B3i wants to find blockchain solutions throughout the value chain of the industry, eventually including policyholders on one end, and capital markets on the other – anywhere the members think they can cut costs of administration, marketing, sales and customer acquisition.
Over time, Zhang says, B3i can help usher the industry into a provider of big-data services. “ Allianz won’t be doing ‘insurance’, but providing a portfolio of services sourced from many partners, and the insurance piece will be there to manage risks,” he said.
To realize this bigger vision, as well as to commercialize B3i, several challenges remain. Managements need to stay the course, particularly in the face of mass layoffs. DLT solutions need to meet a patchwork of regulatory requirements (a particularly big challenge in Asia). Regulation needs to evolve so that a pure I.T. platform like B3i can assure members that its contracts are legally enforceable. More firms need to participate. And the technology needs to mature before it’s ready for full production.
Becoming a vendor
Turning B3i into a company is one way to address these issues. It is partially modeled on R3, a DLT consortium for banks. Like R3, it is evolving from a consortium into a vendor. Also like R3, B3i is meant to first establish an ecosystem, and then generate revenues, by adding members and growing the product suite.
B3i’s team will be able to manage identities in the network (its DLT is private and permissioned, and B3i would play a role in policing which nodes have access to specific transactions), but it would not have access to contract data. B3i will set pricing based on the degree of savings it can eliminate from the post-contract process, which the consortium reckons will be around 30% of costs if enough firms participate.
“B3i is different from previous industry attempts at standardization,” Zhang said, speaking at a presentation in Singapore. “Collaboration is necessary for it to work.” To that end, he says the consortium now boasts over 100 nodes (three nodes from each of its 38 members, plus a few others), which makes B3i among the biggest Hyperledger projects in the world.
What makes so many companies willing to participate in this is the decentralized nature of the technology: it allows them to retain private information behind firewalls but use a common infrastructure to transact. “Blockchain splits the ownership of data from the ownership of transactions,” Zhang said.
It also avoids the risks of consolidating too much information on a single database. “Blockchain offers a single version of the truth that is distributed behind multiple firewalls,” he said.
B3i was founded in October, 2016; its original members are Aegon, Allianz, Munich Re, Swiss Re and Zurich.
