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24 September 2018Analysis

Blockchain: the revolution of the claims process

AXA demonstrated it with Fizzy, Swiss Re is doing the same in combination with Chubb—flight delay/cancellation insurance seems to be a hot topic. It could be an interesting product for every traveller, but it is considered as a medium-sized revolution for the entire industrial insurance market. Is it a parametric risk transfer?

A parametric risk transfer is based on an independent parameter or index that correlates with client’s losses. The parametric solution has a long tradition in the area of weather derivatives and insurance-linked securities—both hedging models work in cooperation with the capital market, which belong to the alternative risk transfer.

Parametric solutions are primarily used in connection with weather events in order to be able to handle the regulation as simply and efficiently as possible. Temperatures this northern summer will certainly lead to various claims—exact figures cannot yet be estimated. There have been extreme periods of drought in many parts of Europe, which will cause a loss in revenue, particularly in agriculture.

Why is AXA’s Fizzy product receiving so much attention? It is the first solution on the market that has been fully mapped via the blockchain. The entire claims process is no longer necessary, and a signal from the airport’s flight information system immediately triggers the payment of the compensation amount to the policyholder.

This is a B2C solution that can serve as a blueprint for the B2B market and highlights the possibilities that go along with blockchain technology (Figure 1).


Especially for products that are currently not possible or difficult to insure, the combination of the blockchain with parametric triggers seems to reveal possibilities which previously could only be dreamed about. In traditional insurance, parametric triggers play a very minor role, as there is an obligation to prove that the damage was incurred.

This often requires a long review process and, in the case of syndicated contracts in particular, due to different wordings of the insurers involved, legal disputes can arise and the settlement of major losses can often take months or even years—which is of course not in the interests of the insured, as they are dependent on a quick payment.

However, it seems difficult for existing insurance companies to switch to the parametric model. All calculation models of insurers and reinsurers are based on traditional wording, and are suitable for conversion to parametric triggers in combination with the blockchain technology. Figure 2 shows that such a solution is clearly more efficient and therefore more cost-effective in claims processing.

Research carried out by the BlockART Institute with representatives of the risk and captive management industry discovered that the topic is controversial and that there is a gulf between customer desires and provider offers.

“We love the idea of parametric solutions. They would allow many of our new risks—especially emerging risks such as cyber threats—to be solved cleanly,” explained the deputy chief of a well-known Swiss captive.

He added: “The issue does not fall on fertile ground for many insurers. There is a lack of models (perhaps also something of a lack of courage) to rethink hedging and to use new calculation schemes as a basis. Besides, it certainly feels a little odd to deal with damages running into millions without any human checks being carried out.”

AXA Global Parametrics, based in Paris, is also a pioneer, particularly in the area of hedging against “new” risks. CEO of the parametrics department Tanguy Touffut said “Claims can be settled within five days and even in seconds with the help of the blockchain.” His team is distinguished by their ability to rethink insurance and create innovative products to make difficult or unpredictable risks transferable through parametric triggers.

Brand damage (H&M marketing campaign)

In 2017, the Swedish fashion chain H&M carried out a marketing campaign for children’s clothing. The company was heavily criticised and accused of politically incorrect behaviour and a lack of sensitivity. The consequences were a drop in profits of almost 34 percent and the stock market value of the company temporarily dropped by 50 percent.

According to the results of the Aon Risk Management Survey from 2017, brand damage risk is the worst case scenario for a company. There are no hedging options—at least not on the traditional insurance market.

As a result of the analyses carried out by BlockART with various risk management experts, the following scenario would be conceivable—protection against capital losses (result of damage to reputation) based on the following triggers:

  • Trigger I: Sales slump (x percent)
  • Trigger II: Increase in peer group shares (x percent)

The hedging itself would be calculable and from an actuarial point of view there would be no objections. The need on the customer side is demonstrable. However, insurance experts have pointed out that brand reputation risk cannot be covered, as one’s own company could also suffer from the damage to its image. Political incorrectness is something a company cannot afford, and it could have a negative ‘halo’ effect on the company’s stakeholders.

Political sanction lists (eg, US vs. Iran)

Another current example is that of Deutsche Forfait AG, which went bankrupt in 2014 as a result of an unjustified listing by the US on its sanction list, as the German company was accused of doing and supporting business with listed countries.

Protection against such damage is very much in demand, especially among European companies, due to the EU blocking statute.

A protection product that Ryskex currently offers is as follows—protection against unjustified political sanctions:

  • Trigger I: Blacklisted by the US
  • Trigger II: Increase in peer group shares (x percent)

Conclusion and outlook

In the context of research and interviews with market participants regarding the possible applications of blockchain technology or parametric solutions, an interview was held with Antonio Nervini, finance manager at Enel Insurance. He drew parallels to Solvency II and admitted that his team and he were initially not enthusiastic about the conditions associated with Solvency II.

“It took us two years of intensive work to fulfil all the requirements perfectly. Today we are very happy and proud of it,” said Nervini. Similarly, he described the possibilities associated with blockchain technology.

“At the beginning it is hard work and a significant change, but Enel is intensively concerned with the possible uses of blockchain technology.”

Various other experts who do not wish to be mentioned expressed similar opinions. Companies’ risks are changing and expectations of market participants’ willingness to find solutions are also changing. It has become clear, however, that many captive owners have a long-standing and good relationship with their insurers and reinsurers, and are therefore reluctant to build up pressure in response to requests for innovative concepts such as parametric solutions or the use of blockchain technology.

Accordingly, the increasing participation of industry leaders in the area of flight delay/flight cancellation insurance may seem like a me-too approach, but perhaps it is more than that: the entry of an industry into the 21st century and the first tentative steps towards breaking new ground.

Figure 1: How parametric risk transfer works

Figure 2: Claim settlement by innovative risk transfer

Tatjana Winter is head of BlockART Institute and a PhD student in the field of platform and ecosystem solutions in the risk and insurance industry. She can be contacted at: