Blockchain, - PwC
Blockchain,a catalyst for newapproaches ininsurance
Thought up as the underlying architecture for the Bitcoin cryptocurrency in 2008,blockchain technology is currently a hot topic and the subject of numerous studies insectors outside the payments industry to which it has often been confined in the past.Blockchain is considered by some to represent the next technological revolution afterthe Internet.In fact, the idea of a decentralised, secure and transparent ledger distributed amongusers can be relevant to many different fields. The insurance industry, with its highlycomplex processes, could be a major beneficiary of the technology.By removing intermediaries in a new type of arrangement, blockchain technologycould completely upend the insurance value chain:- Development/acceleration of new products/markets for which business models weredifficult to define until now.- New approaches to underwriting, contracts and claims management, particularlythrough a combination of smart contracts and the Internet of Things (IoT).- Overhaul of the modus operandi of insurance agreements.- New reinsurance approaches, particularly internal reinsurance via smart contracts.- Transformation of asset management with automated settlement and delivery ofintangibles.Use of blockchain should help to cut acquisition, management, documentation andcompliance costs. It should help new players enter the market and new markets toemerge, particularly in developing countries. By simplifying use and increasingtransparency, it will also help to improve customer satisfaction.Although the upside is significant, several risks should also be anticipated.These include competition with InsurTechs, a legal framework that will need to evolve,and the challenges of rolling out the technology on a large scale.PwC's recent study on the topic ("Chain Reaction: How Blockchain Technology MightTransform Wholesale Insurance") shows that while 56% of insurance firms recognisethe importance of blockchains, 57% still do not know how to respond and capitalise onthis opportunity.Pauline Adam-KalfonPwC France Insurance DirectorSelsabila El MoutaouakilPwC France Insurance Manager
How does the blockchain work?6What is blockchain technology?6Private versus public blockchain9Six examples of blockchain concepts applicable in insurance10Smart contracts10Peer-to-peer insurance14Index-based insurance16Possible use in industry agreements16Reinsurance17Transforming asset management20What are the benefits of blockchain?23Reduction in KYC costs23Lower risk of fraud and theft of insured property25Automation of tasks with zero added value25Better pricing26Emergence of new markets26A wider variety of insurance products and services26Growth in emerging markets27Foreseeable risks28A new competitive landscape28Governance and maintenance challenges28An evolving legal environment29Scalability33Conclusion34How a blockchain works38Proof-of-work versus proof-of-stake39Acknowledgements41EMEA contacts44
How does theblockchain work?01What is blockchaintechnology?Blockchain is a technology that allowsdata to be stored and exchanged on apeer-to-peer1 (P2P) basis. Structurally,blockchain data can be consulted,shared and secured thanks toconsensus-based algorithms2. It isused in a decentralised manner andremoves the need for intermediaries,or "trusted third parties".Blockchain emerged from themarriage of two concepts:1 Peer-to-peer,often referred to as"P2P", is an IT network model inwhich each user represents aserver. BitTorrent, Inc.democratised thiscommunication protocol.23 omputer programme in whichCthe different nodes agree on aresult: first, each computervalidates certain information andthen sends it on to the otherparticipants. Once all of theinformation has been received,each computer runs the samealgorithm in order to select theright result.See Appendix.1. Asymmetrical cryptography,which allows the use of a pairedpublic and private key system.2. D istributed IT architecture(especially P2P).Asymmetrical cryptography enablesusers who do not know each other toexchange encrypted information. Thesystem is based on a public key thatcan be made available to all, andallows encrypted data to be sent to athird party. The third party accessesthe encrypted data via a paired privatekey. The public key is similar to a bankaccount number, which can beprovided to anyone. The private key,which remains secret, acts as thepassword to the same bank account.A distributed system is a series ofindependent computers (nodes) thatconnect to a network and cancommunicate with each other. It issimilar to the Internet, which also hasno central node. Downtime for oneserver does not affect the other users.The blockchain network is a P2Pdistributed system. Information isshared among the different users.6 Blockchain, a catalyst for new approaches in insuranceThe blockchain is open-ended andoperates in a decentralised, ongoingmanner thanks to the activity of itsusers who can store information, andto consensus algorithms (notably"proof-of-work" and "proof-of-stake"3)which certify the information perblock (unit). Users running thesealgorithms are known as miners.When a block has been validated, it isadded to the blockchain and sharedwith the network. Blocks areconnected to each other in such a waythat if users wish to change one block,the entire blockchain must also bechanged.On the Bitcoin blockchain, networksecurity is guaranteed by theavailability of massive computerpower.These two pillars (asymmetricalcryptography and distributedIT architecture) make it possible tocreate a secure environment thatestablishes a new basis for trust andallows for new ways of exchangingdata, new types of transactions andnew forms of contracts.
Advantages ofblockchain technologyAutonomyThe blockchain worksaccording to the rules set by itsmembers.There is no need for a centraldecision-making body.The blockchainoffers an audittrail that canbe consultedat any time byall blockchainmembers.TransparencySecurityOperating datainput on theblockchain isdeemed secureowing to thestacking of theblocks.AutomationClientaccountabilityEach blockchainparticipant has rightsand obligationswith regard tothe blockchaincommunity.The rules set upstream byblockchain members via smartcontracts allow for automaticsettlement.Source : PwC FranceIs blockchain thesolution for you? Are multiple parties sharing data? Will multiple parties be updating data? Is there a requirement for verification? Is verification adding cost and complexity? Are interactions time sensitive? Will transactions by different users depend on each other?If you've answered yes to at least four ofthese questions, blockchain could be thesolution for you.PwC 7
The 3 categoriesof blockchainPUBLIC BLOCKCHAINCONSORTIUM BLOCKCHAINBlocks are validated one after another andcannot be modified.Blocks are validated one after another andcannot be modified.Network nodesNetwork nodesNetwork nodes allowed to participate in theconsensus.The network is open to any new participants.New nodes are accepted based on a consensus.All participants can be involved in validating theblocks.Blocks are validated according to predefinedrules (approval from a specific number of nodes).All participants can read the data contained inthe blocks.Read rights can be public or limited to certainnodes.8 Blockchain, a catalyst for new approaches in insurance
Private versus publicblockchainHistorically, the first public blockchain was Bitcoin,which was launched in 2009. Any computer,regardless of where it is located, can freely accessthis blockchain and be involved in the process ofapproving new blocks. New blockchain conceptshave emerged since the Bitcoin launch. These newtypes of distributed ledger offer the advantages ofblockchain technology but restrict access to thenetwork and the rights of the different users.There are currently three categories of blockchain.PRIVATE BLOCKCHAINPublic blockchains: all participants are able toaccess the database, store a copy, and modify it bymaking available their computing power. Bitcoin, forexample, is a public blockchain.Consortium blockchains: these are open to thepublic but not all data is available to all participants.User rights differ and blocks are validated based onpredefined rules. Consortium blockchains aretherefore "partly decentralised". R3 consortium,which brings together 70 of the world's largestfinancial institutions to pilot the technology using asemi-private blockchain, is a good example of thiscategory.Blocks are validated by an authority and can besubsequently modifiedPrivate blockchains: these are where a centralauthority manages the rights to access or modify thedatabase. The system can be easily incorporatedwithin information systems and offers the addedbenefit of an encrypted audit trail. In privateblockchains, the network has no need to encourageminers to use their computing power to run thevalidation algorithms. As an example, Crédit MutuelArkéa chose a private blockchain to share itscustomer data among the group's different entities4.Nodes chosen by the authority4 87.wss New nodes are accepted by the central authorityBlocks are validated by the central authority.Read rights may be limited by the centralauthority“Before setting up a private blockchain,you need to ask yourself whether adatabase is more suited to your needs.”Sébastien Choukroun,PwC France Blockchain LabSource : PwC FrancePwC 9
02Six examples of blockchainconcepts applicable ininsuranceBlockchain technology has a widevariety of use cases in insurance,and the examples discussedbelow are just the tip of theiceberg. Our5 aim, however, is toshed light on the possible impactson the insurance value chain.Smart contractsA smart contract is a contractbetween two or more parties thatcan be programmed electronicallyand is executed automatically viaits underlying blockchain inresponse to certain eventsencoded within the contract.The data needed to execute thecontract may be located outsidethe blockchain. In this case, a newtype of trusted third party knownas an "oracle" pushes thisinformation onto a certainposition in the blockchain at agiven time. The smart contractreads the data and actsaccordingly (execution/nonexecution). For example, in thecase of cancellation insurance fora train journey, the oraclesupplies information about thetrain's arrival time (whichcan be taken from the carrier'swebsite or from a GPS sensorfitted on the train).The company Ledger proposes ahardware oracle solution thatallows information to be pushedonto the blockchain in real time6.These hardware oracles use aseries of sensors (connecteddevices, the IoT) to track events.There is huge potential here: in2015, there were already over5 billion connected devices; thisshould rise to 20 billion by 2020,for an estimated world populationof under 8 billion.There is a two-fold benefit ofusing smart contracts associatedwith the IoT:1. Automation and autonomy ofmanagement processes basedon data reported by connecteddevices and needed to fulfil theconditions for executing thesmart contract.2. Infinite and immutable datahistory based on a ledger thatrecords all data (including dataprovided by connected devices).For both the insurance firm andits customers, this acts toguarantee transparency andsimplicity, since the related datais present and secure on theblockchain without any actionby either party.5Theviews and opinions expressed in this paper are those of the authors.The type of insurance will still be decided by the ttps://cuvva.com/about9footnote https://slock.it/technology.html610 Blockchain, a catalyst for new approaches in insuranceSmart contracts therefore offergreat potential, particularly inhelping to accelerate thedevelopment of new models suchas on-demand or just-in-timeinsurance.On-demand insurance, which canbe activated and deactivated atthe customer's request, is anincreasingly popular product,particularly thanks to the boom inthe sharing economy. New playersare positioning themselves in thisniche, including for example theInsurTech Cuvva, which allowsdrivers to arrange insurance injust a few minutes whenborrowing a car7. Beyond thiseasy example, smart contracts canfacilitate and help developinsurance cover in the sharingeconomy. With blockchain andthe IoT, the insurance policy,claim and settlement can beautomatically activated providedthat the shared asset carries asensor that can detect the start orend of the insured customer'sjourney, or any other eventtriggering an insurance claim orpayout. A company called Slock.itis even trying to build the futureinfrastructure of the sharingeconomy by enabling anyone torent, sell or share anything – withno intermediary but withinsurance8 that can be activated/deactivated by means of a smartcontact9. Based on this principle,
DocuSign and Visa have already piloted a smartcontract for the purchase, finance lease or operatinglease of a connected vehicle, where the smartcontract is fitted into the dashboard10. Thispartnership aims to facilitate and speed up theprocess of obtaining the associated paperwork,particularly for insurance, using a purely onlinesolution. Pilot schemes such as Allianz Risk Transfer'scollaboration with Nephila (an investment fundspecialised in climate risk). These companiessuccessfully piloted smart contract technologywith the aim of accelerating12 and simplifyingtransaction processing along with the claims andsettlement process between investors and insurersin the natural catastrophe insurance segment.In insurance and reinsurance, several major playershave already shown an interest in smart contractsthrough:Among those firms without a PoC or partnership,many have already begun analysing the technologyor are at least tracking developments. Partnerships/acquisitions of equity interests. AXAStrategic Ventures took part in a US 55 millionround of fund-raising for Blockstream, a start-upand partner of PwC. This young company is arenowned specialist11 in implementing sidechains,or "blockchains underlying a blockchain", whichgive secure access to applications not available onthe initial blockchain (e.g.: micro-transactions apOracles as seen by Éric Larchevêque, CEO of Ledger:Oracles are a fundamental component of any smart contract.They are in fact trusted automated intermediaries.Currently, there are three types of oracle:1. Oracles for online data2. Consensus oracles3. Local oraclesCertain physical data can only be gathered by sensors (temperature, poweroutput, etc.). The local oracle works as a secure meter. It is an autonomous IoT,with no data feedback required. Information is transferred peer-to-peer in theform of transactions on the blockchain.To guarantee data security, a smart card is used. Oracles can be audited andcertified. One weakness exists however: the party setting up the system mustbe a trusted player.PwC 11
Overhaul of the customerexperience and managementprocess via a smart contractHurricanein MiamiContractualisationWITHOUTa smartcontractQuoteA customer requestsa quote for homeinsurance.Purchase ofinsuranceThe customeraccepts thequote and purchasesthe insurance.ContractualisationWITHa smartcontractQuote and purchaseof home insurancefor the customer. Enhancedcustomerexperience12 The cyber-insurance market: A revolution is underwayPurchase ofinsuranceThe client acceptsthequote and purchasesthe insurance.Automatic quote for homeinsurance thanks tocustomer informationavailable on the blockchain(existing customer).Hurricanein Miami
Input from various peopleslows down the claims managementand settlement processClaim managementCustomer claimThe customer mustsubmit all of thedocuments requiredfor settlement.AssessmentAn expert must travelto the site to inspectthe damage.Negotiation of thesettlement amountSettlementBetween several months and several yearsClaim managementA GPS device determines whetherthe house is in the affected area. Adrone may be sent to the site.The weather oraclesends informationon the hurricane tothe blockchain in realtime.AssessmentAn expert must travelto the site to inspectthe damage.Negotiation of thesettlement amountSettlementLess than a weekSettlement is automatically triggered if theconditions of the smart contract are met.This is determined based on informationprovided by the weather oracle and theconnected devices used to assess the claim.Source : PwC FrancePwC 13
Peer-to-peer insurancePeer-to-peer (P2P) insurance has been around forsome time. And yet practices have evolved sinceFriendsurance13 introduced a new distributionmodel in 2010, with blockchain technology bringingnew opportunities thanks to the principle of thedecentralised autonomous organisation (DAO).13 This German portal brings togethercommunities of 15 people (families andfriends) via social networks. Memberswho take out traditional individualpolicies (legal liability, home, mobiledevice insurance) with Allianz or Axa pooltheir insurance into a common "pot"which then pays out for any small claimsor for the deductible. Customers receive acashback for responsible claimsbehaviour.DAOs enable P2P insurance to be rolled out on alarge scale, thanks to their capacity to managecomplex rules among a significant number ofstakeholders. Both incumbent insurers and newplayers could therefore position themselves moreeasily on this fledgling P2P insurance market. Afterall, P2P is ultimately nothing more than a new visionof risk pooling, the idea at the very heart of allinsurance.https://www.friendsurance.com -et-blockchain/AutonomousagentsDecentralised autonomousorganisationsSmartcontractsOpen networkenterprisesHighComplexityLow14Smart contracts represent the first level of thedecentralised application and they often involvehuman input, particularly when the contract is to besigned by a number of different parties. If the smartcontract interacts with other contracts, it can alsocontribute to an "open network enterprise" (ONE).When ONEs are combined with the notion of anautonomous agent (programmes that makedecisions without human input), a DAO, or anorganisation that generates value without atraditional management structure, is en networkenterprisesDecentralised autonomousorganisationsSource : PwC France14 Blockchain, a catalyst for new approaches in insurance
The French start-up Wekeep forexample, offers to pool insurancepremiums for non-mandatoryinsurance within a smart contractsigned by several differentparties14.Following a claim, settlementwould be based on twoconditions: C onfirmation of the insuredevent via tangible data. Agreement of the othermembers in a vote.In this type of arrangement, nomember holds the funds collectedat any time and no centralorganisation has decision-makingpower. The claim is settled if themajority (or a predefinedpercentage) of the membersagrees.SettlementClaimData flow (Oracles)Community voteEscrowPay-in ofpremiumsRefund ofpremiumsurplusPwC 15
Index-based insuranceIndex-based insurance is insurance linked to anunderlying index such as rainfall, temperature,humidity or crop yield. This approach addresses thelimits of traditional crop insurance in rural regionsof developing countries, for example, by reducingmanagement and settlement costs. In a region suchas Africa, where insurance penetration is just 2%there is genuine scope for this type of insurance togain in popularity15.However, despite
Growth in emerging markets 27 Foreseeable risks 28 . PwC France Blockchain Lab. Six examples of blockchain concepts applicable in insurance 02 . for an estimated world population of under 8 billion. There is a two-fold benefit of using smart contracts associated with the IoT: 1. Automation and autonomy of
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3 Opportunities for the Use of Blockchain in Health Care 9 3.1 Benefits of Blockchain 10 3.2 Disadvantages of Blockchain 10 3.3 Key Health Care Challenges and Use of Blockchain 11. 3.3.1 Electronic Health Records. 11 3.3.2 Supply Chain 12 3.3.3 Health Insurance 13 3.3.4 Genomics 14 3.3.5 Consent Management 15
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