The insurance industry may be lagging in blockchain development compared to what is happening in other financial services areas, such as capital markets trade processing and payments, but it too is exploring distributed ledger approaches to common industry challenges. Farron Blanc, Vice President, Innovation Studio Lead at RGAx, the incubator and accelerator unit of reinsurance giant RGA, has been tracking startups in the space and exploring how they might help provide new digital offerings for those underserved by life and health insurance markets.
Reinsurance Group of America is a leader in the global life reinsurance industry with assets of approximately $50.4 billion, and about $10 billion of annual revenue. The company is one of the largest life reinsurance companies in the world, and unique in that it focuses primarily on life and health-related solutions. From its world headquarters in St. Louis, Missouri, RGA employs 2,000 people working in 26 countries.
RGAx, the innovation business unit of RGA, is focused on building and commercializing new business concepts addressing the relative lack of affordable, high quality consumer financial protection solutions.
Says Blanc: “Basically, we are working collaboratively with our insurance clients, fintech startups and other Fortune 500 companies to significantly reduce the 58 million households in the U.S. who don’t have adequate life and health insurance. With RGAx, we’re trying to use RGA’s strengths in pricing and underwriting risk, but with a focused approach on new digital solutions, and a flexible business model that is outside of our core reinsurance revenue stream.”
DL: How did you (and RGAx) become familiar with blockchain technology and what is your overall impression of its utility and likely impact?
FB: I personally became aware of Bitcoin back in early 2014 with the Mt. Gox news. After the subsequent hype, late in 2014, I started seriously diving deep into the cryptocurrency space first as a tool for personal financial speculation – buying bitcoins. Around the mid-point of 2015, several industry voices internal to RGA and the broader fintech community started thinking about the potential impacts to our industry. Blockchain will fundamentally recreate the financial services industry within ten years. And it's certainly not just me or RGAx saying that. The established financial industry is taking notice and making big moves – for example, more than 40 of the world's largest banks have created a consortium, R3, to collaboratively create blockchain technologies.
DL: Specifically in terms of RGA’s business, in what areas do you believe blockchain technology might have merit?
FB: The first use cases will be around payments and securities, however insurance as a macro-industry has many attributes that could benefit. In a nutshell, blockchain will help accelerate the digitization of insurance with features such as a secure and transparent audit trail, which will improve consumer trust; lower operational costs, which will enable more microtransactions; and instant peer-to-peer transactions, which will remove the middleman and enhance speed .
DL: Regarding the panel that you are moderating at the Distributed: Trade conference, you are covering the broad topic of cash management as opposed to just payments. Why this broader approach?
FB: Payments are receiving much attention from those improving the modern financial infrastructure…. But St. Louis and the Midwest have a unique point of view: they are focused on setting up and optimizing world-class supply chain companies – whether that is FedEx or Express Scripts. Thus, the intricate subject of cash management relates to multiple functions and is a strategic imperative for large supply chain enterprise. The potential to create new infrastructure to optimize reconciliation and improve trust are much larger than just payments.
DL: Without giving too much away ahead of your panel, where do you see blockchain helping the cash management process?
FB: When I speak to the folks who run RGA’s global finance function, there is a lot of complexity and process around tracking information to allocate payments and expenses to the appropriate business unit’s P&L. That’s what I call a first-order efficiency opportunity, that distributed ledgers coupled with smart contracts should be able to significantly automate.
There is also a second-order problem that could eclipse efficiency gains in terms of bottom-line impact. For example, because of business demands and technological limitations, RGA holds millions of dollars in various bank accounts globally – earning minimal returns. If there is a way to consolidate that through a more efficient ledger, it really emphasizes the time dimension of return on capital calculations.
DL: Beyond RGA and cash management use cases, what other early use cases do you foresee for blockchain? Is there a killer app coming soon?
FB: I won’t be so bold as to predict a killer app – but I broadly think that provenance problems are very interesting– so the use cases that Everledger is tackling are very exciting and will be quite transformative when they trickle through the rest of the economy. And then , broadly, digital identity is quite interesting. So a transparent, secure, non-centralized version of Facebook Connect could really transform a lot of secure consumer user experiences, whether that is using a smart lock on your next AirBnB stay or checking the status of your retirement funds – but that’s probably a few years off.
DL: What business or technology issues might hold blockchain adoption back?
FB: Like all technology – blockchain will follow the Gartner Hype Cycle. But the key question will be, how quickly along the cycle can blockchain technology move through the peaks and valleys towards a productivity plateau?
On the business side, entrepreneurs seeking funded pilots from large corporates will be well served by clearly communicating the quantitative benefits and profit implications of adopting a blockchain solution.
On the technology side, I’m certain that the infrastructure scaling issues will be solved the same way they are always solved: smart entrepreneurs working on a narrow problem … an example includes the Lightning sidechain network.
What I believe might really hold back adoption is human resources. There is a scarcity of development talent that really understands cryptographic distributed ledgers. That’s one reason why Mark Showers (RGA’s Chief Information Officer) is excited about the Hackathon portion of the conference – we want to expose the next generation of developers to this technology early in order to get the ball rolling.
DL: Finally, looking further out, do you have a prediction for blockchain technology pervasiveness in 2020?
FB: Despite the business, technology and human resources issues – RGAx’s public view is that the next generation of insurance products and services will be built using blockchain protocols. Consumers may not be aware of them, but by 2020, we will see some of the benefits becoming clearly articulated and material to all parties, whether that is between consumers and their advisors, or policy beneficiaries and insurance carriers, or insurers and reinsurance partners.
Traditionally, the insurance industry is not a rapid technology adopter – so the 2020 use cases will likely be more pervasive in underserved white-space segments such as remittances, financial inclusion and financial resilience – but by 2025 the mass market will likely be benefiting from the improved trust and transparency of distributed ledgers.
Note: As noted above, Farron Blanc is moderating a session in the financial services stream at the Distributed: Trade conference, taking place on June 14 in St. Louis, Missouri. The panel, including banks and payments vendors, will focus on how blockchain might be used to improve efficiencies for cash management processes for companies with multiple banking relationships. More at GoDistributed.com/trade.
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