" class="no-js "lang="en-US"> RE-inventing the value chain - John Carolin, B3i ‘The Insurtech Magazine’
Thursday, May 30, 2024

EXCLUSIVE: ‘RE-inventing the value chain’ – John Carolin, B3i in ‘The Insurtech Magazine’

John Carolin is CEO of B3i, an industry initiative working to mutualise the benefit of distributed ledger technology. Here, he explains how it’s already creating real business value in reinsurance John Carolin, B3i | Fintech Finance

The insurance industry is in a race to modernize and make best use of new digital technology in order to respond effectively to current external and internal challenges. But is it leveraging the technology to its full potential?

The list of external challenges the insurance industry is currently facing is undoubtedly quite long. It ranges from COVID-19, volatility in financial markets and investments, through to an increasing frequency and severity of natural catastrophes. However, there is a fundamental, internal challenge that persists: unnecessarily wasteful administration. This has resulted in admin costs as a percentage of revenue increasing by 40 per cent in the insurance sector between 2009-2018, while other industries have been able to cut costs by 20 per cent during the same period.

Where does this admin problem stem from? Players in the risk transfer industry have made incremental investments to improve and to digitise their internal processes and procedures. At the same time, business complexity, including transactional volumes and data requirements, has grown significantly. In order to place and administer a single contractual agreement among the various parties involved, manual processing, recalculations and reconciliation still account for a significant proportion of the work carried out; as much as 35 per cent of operational costs are back-office admin. Despite incremental improvements being achieved, the industry has not yet reached, at global and wide scale, a satisfactory level of process automation, and remains still strongly bound to manual processes.

Against this background, it’s clear that companies’ individual digital transformation strategies will not get us to where we need to be as an industry. Instead, it is vital that we transform the common foundations of the industry and thereby fundamentally change insurance operations, end-to-end. This is something that cannot be achieved by insurers or intermediaries acting alone. So which technology to choose in order to optimise and automate market-wide processes, to generate significant savings in time and cost?

Various market players decided to form B3i, initially started as an industry consortium, which was later incorporated as a for-profit company, to realise the potential of blockchain and distributed ledger technology (DLT) in the insurance industry. The clear objective set by the shareholders, which include 21 major insurance companies across the world, was to develop standards, protocols and a network infrastructure to remove friction in risk transfer. In 2016, research commissioned by PWC highlighted the extent to which DLT could radically transform the reinsurance and retrocession value chain. Reinsurance expense ratios are normally five to 10 per cent of reinsurance premiums. However, due to admin efficiencies, reduction in claims leakage and fraud, PWC estimated that 15 to 25 per cent of expenses could be removed with a DLT solution, which could amount to an industry-wide saving of $5-10 billion.

These findings were broken down further by BCG research in 2018, stating that detecting risk concentration automatically could improve combined operating ratios by around one percentage point and automating reinsurance processes a further four to five percentage points. Promising figures, and we at B3i wanted to understand the implicationsin more detail. As a first step, we tested assumptions around scalability of the technology, focussing on Cat XoL and the reinsurance placement. Then, in June 2019, we conducted a testing hackathon with brokers, insurers and reinsurers and asked participants to set up real scenarios to stress test our reinsurance prototype and provide feedback. Testing revealed that by reducing manual entry and reconciliations, up to 30 per cent of administration cost savings could be achieved across the end-to-end reinsurance value chain.

Already in October 2019, we were able to provide a group of 20 insurers, major brokerage firms and reinsurers with the opportunity to participate in complex placements, which were conducted as part of 1/1/20 renewals or as a re-creation. This parallel approach enabled direct comparison of process efficiency and proved that DLT was enterprise-ready. Participants involved in the renewal placements reported various business enhancements, ranging from reduced administration, increased auditability, to improved workflow efficiency, better interactions with the business network, higher contract certainty and better sharing of sensitive data.

Following another year of continuous engagement with our customers, we released major enhancements to B3i Re (B3i Reinsurance, our first application built on top of the B3i Fluidity platform) in September 2020. Recent validation with customers anticipates that B3i Re will have a positive impact on customer satisfaction, contract certainty, data quality, compliance, security, auditability, fraud detection and better use of business resources. Version 2.1, released in April 2021, brings further post-placement functionality, introducing claims handling for the first time. B3i continues to work closely with industry participants to ensure new functionality is developed and, for the next release, broadening the type of business that can be placed and administered on the platform, extending functionality to include settlement, and enabling the generation of legally bound contracts on ledger.

Together with customers, B3i sets out to prove the businesses benefit of the B3i Re application and protocol, extending this approach to derivative products and new projects. The growing codebase of reusable components within B3i’s network and DLT platform Fluidity, and significant reductions in the cost of network infrastructure is accelerating the delivery of functionality across a number of customer projects.

Building an ecosystem

By creating the protocols to facilitate efficient reinsurance administration, we developed the underlying technology that enables us to provide an ecosystem that facilitates the rapid development of third-party applications, which can interoperate with other applications on the network. B3i’s Fluidity is a platform and network that enables an ecosystem supporting the development, distribution, monetisation and operation of interoperable applications. Within this ecosystem, we have developed a risk transfer language, which provides a class library of common insurance domain objects on which all applications can be rapidly built for interoperability.

This enables multiple firms to better collaborate than on a stand-alone basis and without the need to build every application from the ground up, thereby redefining boundaries across industries. Furthermore, the ability to connect with other industries is key to reaching new customers, developing new revenue streams and increasing market share. Altogether, more than 40 companies are involved in B3i as shareholders, customers and community members. There has never been a better time to collaborate in order to transform insurance business and to establish a functionally-rich ecosystem for the benefit of all stakeholders.

There is a rising demand to enable more integration, to increase efficiencies and to improve collaboration across different ecosystems. By working together with shareholders, partners and members of the growing B3i network, we can identify and address industry problems and drive forward the adoption of relevant DLT-based solutions at scale. By mutualising blockchain and DLT for the benefit of the whole industry, we aim to generate significant savings in time and cost that cannot be achieved by insurers or intermediaries acting alone.


This article was published in The Insurtech Magazine #06, Page 46-47

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