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18 June 2018Analysis

Premium payments and captives: cryptocurrency use cases

Blockchain and cryptocurrency are used as buzzwords but their future impact is still uncertain. Numerous myths, legends and rumours exist around those topics. Over the past few months, research on blockchain became more intense. At the BlockART Institute, we were able to overcome some of the biggest challenges by developing our product, Ryskex.

In earlier editions of Captive International we have dealt with technological requirements of cryptocurrencies, introduced various well-known cryptocurrencies and distinguished them from the use of company-owned tokens. In this article, market participants present use cases where they have dealt with blockchain concepts using cryptocurrency and tokens.

That blockchain is a serious technology for the industry is underlined by the fact that not only startups are dealing with it; well-known, established companies of the insurance and captive market are researching in that field and developing business models.

It turns out that many projects are carried out collaboratively, for well-known reasons of cost containments during project development, as well as the fact that know-how of blockchain technology is used most sensibly when several parties work together. Lateral (HSBC & Cargill), vertical (Maersk & XL Catlin) and horizontal (B3i) cooperation have been established (Figure 1).

Great attention is also drawn to the B3i conglomerate, which is adapted by leading insurers. Currently it seems there are no plans to go beyond a beta version, but due to the participants involved, the insurance industry is seriously interested in this new technology and the possibilities associated with it. In 2017 it successfully completed its first product, a blockchain prototype for property cat excess of loss reinsurance contracts.

Developments in this network are progressing steadily. However, there has been no announcement yet that cryptocurrency payments or a B3i token will be used.

Due to the large number of participants and the currencies involved, this will certainly be a topic of the future. After all, using an own token would significantly streamline administration and costs. The network was founded in light of reaching those goals. It’s a collaboration of insurers and reinsurers to explore the potential of distributed ledger technologies within the industry that are beneficial for all stakeholders within the value chain.

Own tokens

Using their own tokens seems only a question of time. One of the leading members of the network is Allianz. In a press release in April, the company announced that it was planning to use its own “Allianz token”, which can be understood as a pilot for B3i and thus as a blueprint for the insurance industry.

Allianz announced that it is testing the introduction of its own cryptocurrency in form of an Allianz token. The intention of Allianz is to increase efficiency while eliminating exchange rate risks in internal payment transactions. A blockchain expert of Allianz stated that the token owned by Allianz would help to get rid of foreign exchange constraints and other matters they have to optimise, especially when it comes to certain currencies which are not accepted at headquarters.

Alan Cabello, the innovation programme manager for central and eastern Europe at Allianz AGCS, said: “The token idea cropped up from the previous prototype built for captives and retrocessions, the practice of one reinsurance company providing services to another.”

He also considered that moving money takes a lot of time and there are many requirements a company needs to keep in mind by shifting money from entity to entity.

“Every major industry has the same problem,” he said. Allianz does not plan to use a cryptocurrency, as this is also subject to exchange rate fluctuations. The Allianz token is not a cryptocurrency in the classical sense, but a great relief.

Another collaboration that attracted attention was led by the Danish shipping giant Maersk, XL Catlin and the data security firm Guardtime. They designed a blockchain-based marine insurance platform. The shipping industry needs to reduce costs (unsteady demand and a glut of vessels have a negative impact on the industry). They created a concept for a solution based Microsoft’s Azure cloud platform.

Mike Gault, chief executive of Guardtime, said: “Blockchain was absolutely essential for providing access for all parties—including shipping firms, insurers, brokers, and other suppliers—to the same database, that can be integrated into insurance contracts.”

The use of cryptocurrencies or a token did not (yet) play a role in the development part (at least this was not communicated).

Despite the launch, it is impossible to estimate the extent to which this project is coming to a standstill. There are rumours that XL Catlin and Maersk are going their separate ways. An industry insider who wants to remain anonymous said in an interview that this means a step backwards for the entire project.

Other developments

While Maersk is focusing on marine insurance, HSBC, ING and Cargill did the world’s first commercial-finance transaction. As Cargill is a worldwide operating company whose major businesses are trading, purchasing and distributing grain and other agricultural commodities, the blockchain transaction was covering its core business. The exchange was for a shipment of soybeans transported from South America to Asia. The partnership of Cargill with HSBC and ING was beneficial because the banks developed the R3 consortium and refer to great knowledge of blockchain technology—they developed the blockchain known as Corda. Since the transaction was made on a central platform, all participants gained advantages in efficiency, as time and paperwork were minimised.

IX Ledger is an insurtech company founded in London in 2017 with a full-time approach. The aim of the company is to create an alternative insurance platform using blockchain technology. The company provides solutions to streamline processes for insurance companies and brokers so they can operate more effectively in customer service and engagement and increase revenue.

They work with a strong team of technologists and experienced insurance professionals to create innovative solutions for their clients. Their goal is to provide a collaborative marketplace which is truly open and transparent. The platform can be used by all participants along the industrial insurance chain including brokers, insurers, reinsurers and third party specialists. The platform is based on Ethereum blockchain and is in its prototype phase. It is a further developed platform solution and was financed by an initial coin offering using cryptocurrency.

Ryskex is a captech ecosystem founded in Berlin 2017. It is specialising in solutions for captive companies, with focus on saving insurance tax, capacity bottlenecks of various insurance lines, and creation of new solutions for non-insurable risks, for example through use of parametric indicators such as respective double or triple-trigger wordings.

The company uses the public Ethereum blockchain and, in addition to classic insurance market participants, also cooperates with other investors who are interested in participating in risk hedging of captive owners and large corporate. The ecosystem has its own token which payment transactions within the system are regulated with: the Ryscoin. The company is currently working with various well-known market participants on pilot projects that are currently aimed to cover cyber risks, recruitment problems and innovation failure.

The platform launched on June 1 and at the time of writing there are already two captive owners who cover their credit and cyber risks via Ryskex (Figure 2). As described above, blockchain technology has reached the centre of the industrial insurers. For customers, insurers, reinsurers, brokers and other service providers, this solution is seen as revolutionary and promising, underpinned by millions of euros in investments, that could not be regulated by banks, states or other institutions.

The cryptocurrencies, on the other hand, seem not to be able to alleviate the pain of companies and play a subordinate role in the considerations. None of the well-known providers or emerging insurtech and captech companies attaches greater importance to them. However, it seems conceivable to use an internal token that is coupled to a real currency (see Allianz and Ryskex).

Such a token can remove exchange rate risks and streamline administration within the company or simplify handling of legal framework conditions. It is a future dream, but quite conceivable that company owned tokens will mutate into a cryptocurrency.

Global megacorps in particular could position their own currencies. Thus the future currencies would no longer be dollars, euros and yen, but Amazoncoin, Allianzcoin, Ryscoin and Daimlercoin. The blockchain would have fully respected the aim of its founders: a deregulated money economy.

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: