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The insurance industry looks set to be the next big beneficiary of blockchain technology, with a leading industry collaboration launching a prototype of its blockchain solution for reinsurance.

The Blockchain Insurance Industry Initiative, also known as B3i, is a joint effort between 15 insurance and reinsurance companies, who since coming together in October 2016 have been exploring how the much-hyped technology can help make data exchange between the companies more efficient.

Now ready with a prototype, the group will start its market beta-testing programme next month, and is inviting other insurance industry participants, including insurers, brokers and reinsurers, to take part.

The prototype is built and hosted by IBM and powered by Hyperledger Fabric 1.0, a Linux Foundation open source blockchain framework.

Utilising blockchain technology, which enables secure, confidential and efficient transactions, B3i believes the industry as a whole can achieve a productivity gain of up to 30% from lower administration costs. This will translate into more attractive rates and fees in the future.

Commenting on the launch of the prototype, Paul Meeusen, director of finance global business solutions at Swiss Re, says the solution is “close to a production-ready environment” and that the team is preparing for a first deployment into production in 2018.

Blockchain technology is already being heavily explored by financial institutions around the globe, but insurance companies too are ripe for disruption. As reported by GTR in its annual insurance publication, the B3i initiative is just one of many use cases for blockchain in the insurance space.

Speaking to GTR at the time, Sylvain de Crom, the head of research and development at Aegon, said that reinsurance was a good place to start for testing with blockchain technology, as it is a very paper-heavy process involving several actors, all of which have their own administrative systems and individual contracts with each other.

“If a large claim happens, the insurance company runs the claim through its administration systems and calculates what it means for the reinsurance contract in its own version of the truth,” de Crom said. “Then it tells the reinsurance company, which takes all the data, runs it through its own systems, calculates the impact in its own version of the truth and communicates that back to the insurance company. In the ideal solution, everybody ends up with the same number.”

But that doesn’t always happen, he explained. “It can lead to a lot of additional work and time spent on the whole claims process between the insurer and the reinsurer. If there’s a difference, settlement can take weeks to months.”

In the future world of blockchain, however, the many corridors of communication can be replaced with one network of insurers and reinsurers, who can easily interact on one shared ledger, on which they have agreed on a so-called smart contract – a deal written in a computer code that can be automatically executed based on certain parameters. Being tamper-proof, the ledger provides absolute transparency and accountability for all parties.

“We would no longer need a piece of paper but a piece of digital content that does calculations itself,” de Crom said, going on to explain how the B3i solution would work: “Then, when there is a large claim, the insurance company feeds the data into the smart contract that has computational logic, and which calculates what that claim means for that insurance and all the reinsurance companies on that contract.”

Since everyone is sharing the same immutable ledger, and the same smart contract living on it, the numbers will be consistent. “You can essentially take a process that took weeks or months and turn it into something that runs in minutes, if not seconds,” he said.

The participants in B3i’s testing programme will be granted access to a sandbox environment, which will simulate the creation and settlement of these smart contracts.

While the short-term focus of the B3i platform is on handling reinsurance contracts, the B3i team says it has also developed an industry business case across the whole value chain. More details on this will be disclosed at a later stage.

The current 15 members of B3i are Achmea, Aegon, Ageas, Allianz, Generali, Hannover Re, Liberty Mutual, Munich Re, RGA, SCOR, Sompo Japan Nipponkoa Insurance, Swiss Re, Tokio Marine Holdings, XL Catlin and Zurich Insurance Group.