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Focus on insurtech that works, not blockchain experiments, says consultant

The use case for blockchain in insurance remains unclear despite the industry's apparent enthusiasm for distributed ledger technology, according to a London-based industry consultant.

Speaking June 7 at the Insurance Insider's InsiderTech London conference, Oxbow Partners' Chris Sandilands said there is a difference between technologies where insurers should be "pouring on the rocket fuel," devoting time and resources to implementing them in their businesses, and technology for which there is not yet a product/market fit, things that work but that have no obvious utility or ability to generate profit.

"There is a lot of attention on blockchain in the industry at the moment," said Sandilands. However, he added: "It is the Oxbow Partners house view that although blockchain, for possibly good reason, gets a lot of attention, it is still very much unclear what that product/market fit is for blockchain."

One example, said Sandilands, is the Lloyd's of London and London market electronic insurance placing system, PPL, which Lloyd's is pushing firms to adopt as it looks to cut costs in the historically paper-reliant marketplace and stay competitive against arguably nimbler competitors.

He said: "If it is true that you can build a placement platform between parties without using blockchain, the whole argument that you need blockchain to be a trusted ledger between parties seems to be quite weak, in my opinion."

Sandilands is a former Munich Re directors' and officers' liability underwriter and senior manager at strategy consultancy Oliver Wyman.

Don't 'force' blockchain into business

The insurance industry in general is exploring ways to use blockchain, an encrypted record of transactions that started life supporting the bitcoin cryptocurrency. Some of the world's biggest insurers and reinsurers, including Munich Re Co., Swiss Re AG, Hannover Re and Scor SE, have formed the Blockchain Insurance Industry Initiative, or B3i, to create blockchain solutions to be used by the industry.

But although blockchain may yet prove to have a use case, Sandilands said: "Our view on that ultimately is: Think about what you are trying to achieve. Blockchain might help, but it is not about starting with blockchain and then trying to find ways of forcing it into your business."

The technologies insurers should be spending time and money on, according to Sandilands, are insurance platforms, such as new policy administration systems; artificial intelligence in areas such as pricing and claims; geospatial analysis to help insurers assess where their exposures are; and automation.

He said: "Those are the areas that I think insurers should be thinking about, where arguably effort should be moving out of innovation teams and into the business. These are now things where you don't want to be doing it as an experiment on the side."

Improve efficiency

Sandilands also said the insurtech market had shifted away from wanting to create a new type of insurer or broker, which he described as "distribution insurtechs," to wanting to become more like technology vendors to the insurance industry, or "service insurtechs," helping companies improve specific processes.

He said: "I think it is true to say that there are going to be lots of opportunities over the next five years for incumbents to think very hard about how these new technologies can help them and to look at these new businesses really as a new generation of vendors."

Insurers are also now asking "much more specific, much more practical, much less frothy questions than the kind of things people were talking about in the past," he said. For example, insurers are now asking how they can use insurtech to improve efficiency in their marine claims process, rather than whether they should set up a fund to invest in insurtech companies.

"On the other side of that, you have got an emergence of insurtechs that are actually able to deliver for insurance companies," he added.