Putting Insurance on the Blockchain - Paul Meeusen, Swiss Re

Transcript

[Music] hello and welcome to the blockchain and us we're pioneers and thought leaders talked about their journey in blockchain technology crypto assets and the token economy and I'm your host manuel staggers if you enjoyed this podcast please give it a top rating and review on iTunes and feel free to follow me on twitter at manual staggers this episode is brought to you by christos storage crypto storage offers a proprietary solution to enable professional storage of crypto assets the gorge is secured both physically and digitally on the highest grade hardware security modules with detailed configuration possibilities for individual based

access control to learn more visit www.ohp.parks.ca.gov/governorsawards [Music] and he designed the first blockchain use

case for retro session insurance on etherium in 2016 and now to the interview hello Paul and many thanks for making time today hi good to be here so our last interview was about one year ago when I made this blockchain documentary and back then you had just started a blockchain initiative at Swiss 3 what is the progress of that project good it's been good it's been a bit yeah more than a year and a half almost and we started at 3 3 and we quickly realized that as you would

expect with share Ledger's or distributed ledger is the true success really does not come when you do it on your own so a shared ledger experiment quickly began as to sharing our findings with others in the industry so an internal internal prototype in the fall of 2016 was shared by us with a group of about five and we decided to form a small joint venture that became 15 and then we worked all through our 2017 on a joint prototype we brought in our intelligence other companies had theirs that led to this so-called cata XL a natural natural catastrophe

contract settlement platform in good prototype stage and that was most of 2017 ok how did you initially get in touch with blockchain technology yeah so at the time I was in charge of our finance service centers ins in v3 I spent most of my time in India and Slovakia and especially in India I came across very technology savvy people and in one of our tech startup days amongst different topics I came across the topic of blockchain this is not more than 2 and a half years ago and I started learning and this sound sounded to me to me the best of the different things I

had seen over the past 20 years a bit of internet a bit of cloud computing rid of good cryptography and security handling and also this thing that I was told called smart contracts and that interested me a lot because I started in early days in my career in financial modelling which was trying to express financial logic into easy-to-understand computational logic so essentially that is what smart contracts to us so that's what got me interested and I then tried I didn't started applying it to a real internal case and we took our internal retrocession process and applied all of these things and showed very quickly

that the efficiencies that you can achieve when everyone looks single version of the truth when you eliminate and necessary in limine reconciliations that can really shorten dramatically the elapsed time and you can focus much more on what is in this case a risk transfer process and insurance rather than all the data reckoning and the reconciliation how did you go originally about understanding the tech part of everything yeah we started with aetherium at the time we to wait about that I also getting seen some outside help we used some consulting

advice to select it first which platform we would use pretty fairly quickly made a selection and unfocused also with outside help on doing a rapid prototype not more than about ten weeks and we had a mixed team of so-called insurance subject matter experts contract experts legal experts and some IT experts we had to admit it is new territory for us so we had the external coding largely done by a specialized firm but we work shoulder-to-shoulder with them so that we could at least have knowledge transferring and that helped us then

also when we did step two with the consortium we decided on a different platform we could and even more involve also our own developers and therefore you don't only develop a solution but also further develop your in your own own internal know-how and that that I think I would advise that due to everyone because it's not only the what you do but also how you do it any field and how you do it make sure your internal knowledge also gets built up which prevents you also getting too much in a rabbit hole and focus only on technology but you done have people who can only explain this could also explain

this to your business users in the house who need to be convinced that this technology reading makes their life easier so that was the pilot internally that you had you started it was it was your idea to start this with in Swiss three yeah it was so at one colleague in our India office who introduced me to the blockchain technology you get insurance even in those days claims was typically an area that people would think of I looked at that claims with the head of our claims and business management as we call it the reason why we didn't go for the external claims process we would need

this quite a critical process in insurance companies we would need the beneficiaries our clients the beneficiaries of claims payment to be ready to engage in such experiment and for something that's quite like vital in what we do make sure the plane the claims get paid on time we quickly saw that's perhaps not what external clients want to experiment on so that's then therefore why we went to the internal process where its internal insurance as well but it's mainly at intra company process where you kind of settle on a net basis between each other so companies we didn't we see you Oh H other premium and you get claims in rivers it's at the more or was a safe

zone and we could also run things in parallel still have the old system in place versus the new the new prototype and then we but when I came with the idea we put a virtual team together so this was largely done by people doing it in addition to their normal job and then with some some outside support how hard was it I mean Swiss three is a very traditional company how hard was it to to start something like this I mean back then cryptocurrencies or blockchain technology still had maybe you know somewhat of a lesser reputation than it does today it was maybe less clear what big companies could do with it but how

hard was it to convince the company to to let you do this yep well the it wasn't easy I'll try to answer that by saying in hindsight what were the meeting the various mitigations that we had to say almost like getting away with it one was I would admit flying a bit under the radar as simple as it may sound but as I said right and most of the other colleagues did it kind of besides their normal job and that's maybe often life often entrepreneurs as well need to kind of do something that they keep them alive and somehow in free time do the next real thing that I really want to do

and I had and sometimes its basics like that having an agreement with your boss that you have your thing organized in some way that with 80% of your time and good delegation and organization you promise your boss that things won't fall apart if you have to judge for yourself whether you're in a business or in at a point in your career whether you've built things up stable and efficient enough that you can delegate and so that was luckily situation I was in so a bit of flying under the radar how big was the team or initially or initially we had about five internal and complemented with five external well max and not all those and all those kind of most of the

five internal flew a bit under the radar all managed to have some like 70/30 agreement with their various departments that take it to kind of free up something in the order of 30 percent the second is not just under the radars very much on the radar is having a strong sponsor so we really had like c-suite level two sponsors I had from the beginning who backed us up who wanted us to be creative with funding so ever bid we this was not some massive project also gave us the right subject matter experts to validate our ideas and the

last thing is probably not to create massive large projects like succeed fast or fail fast so this was a fairly short 10-week period which is quite short duration compared to other large project in ten weeks you got the pilot off the ground yeah okay did you interact with the CEO as well in that time not at that time when since it was soon after when it started evolving to a more solid consortium some women we moved and then kind of donated our idea into the industry then very much because our current CEO was himself in his very early days in the career

directly involved in a prior initiative that sweetie was involved in called in rien almost 20 years ago many Christmas fee kool-aid a initiative one could almost say it's a bit similar to b3i today but with with the e-commerce type of technology caming coming on board in the early 2000 years so I had some advice from him especially on like making sure like what not to do to make sure there's a broader adoption it's not seen as being dominated by two large players it's not seen as being dominated only by reinsurers and making sure that

there's the benefit can be seen early on it's often the case that accessory is quite as a good reputation for being a knowledge company but has sometimes to be a bit careful that you develop a lot in the investor lot in knowledge which costs a lot of money and you have to also be careful that things have a return as other or else you may get in a situation you're one of the few companies in the industry always investing in knowledge development and the others nicely benefit from it and how did you make sure that wouldn't happen that we had from the beginning in v3 I had a quite balanced membership between seasons through primary

insurance companies brokers and reinsurers especially when the market testing group also joined in the fall of 2017 regionally also spread although the largest participants from Europe and we had us and Japanese members and investors from the beginning and that we also didn't just outsource everything to an army of consultants and nothing against consultants we have we had excellent outside support but if it takes away the ownership and engagement from the member firms then you you really outsourcing your accountability a little bit so those were some of the ingredients we applied well I mean when

you talk about it like this it you make it sound so easy right we brought in these japanese reinsurers and and the other competitors even into our project here but I mean Swiss three has thirty billion dollars of premium volume I mean it's one of the biggest reinsurers in the world and here you were developing a pilot on the etherion blockchain which you know back then it was just the dow heck just happened and all kinds of things like this i mean was there ever any tension between that yeah true so on the technology choice that that's that that's one indeed challenge the technology is evolving so we had with we then moved from aetherium open the spectrum again looked at everything

that was available about a year and a half ago we chose for hyper ledger hyperlink fabric have very good experience with that all through 2017 maturing or a prototype to where a good minimum viable product and currently we can we're at the next challenge we were critically under the the review of our members again as you go to operational readiness you need the next level of operational risk management so scalability when high volumes come and privacy management when private and sensitive data like life policies for example get on your platform scalability and privacy was again further heightened

or increased in terms of key criteria we really cannot miss so we now we now again the platform review and we will again we are reassessing what platform technology platform is the one we would go into an operational life environment wait so that that is a challenge this it's the nature of this type of technology that a lot is still evolving it's also a challenge to keep everyone engaged so we currently have focused mainly on the insurance property and casualty we just have to start somewhere back to this fail fast succeed fast and don't create a mammoth project but is of course it did require some of the

members to have a longer breath so if you are a US focused life and how big insurance or reinsurance company and we have some members you have to have a long breath and a strategic view to say okay we bear with this consortium doing Property and Casualty which has no value others because we know that will lays the basis and in a good year from now they'll get to the business segments that I am interested in sounds easy isn't always and also we've had members who decided okay it's good it's been good to learn but we are stepping out and we'll come back when you are in the lines of business that are of direct interest to us yeah I was just about to

ask I mean I'm sure that wasn't smooth sailing all the time I mean were there any challenges where maybe you thought oh I'm not quite sure that's ever you know gonna happen or maybe we really have to think this through again from a different angle one is also getting the right expertise so I said before you need like the technical expertise coding and set the coders attack architects blockchain technology specialists but also even this bit specialized industry also those that really live and breathe insurance so that can talk about these contracts the rules the terms the conditions exclusions all of that so that latter category the so-called subject matter experts they don't like grow on trees it's a bit of a special

business insurance especially reinsurance is often known like you only take in serious when you've done it for 10 15 or 20 years a bit overstated perhaps but the point is you do need a couple of these veterans in that can bring that subject matter expertise and of course they're always scarce and it's not easy to just get them but we that was often quite challenging and we know one of the solution was indigo indigo into shorts so called sprints so short development cycles so you go to it like the c-suite and say okay we just need a couple of your specialists for this distinct short period for their functional input some

because we really want to create a product that is as it should be we don't want to do something in isolation in some lab and you'll tell us that we are just out of touch with the reality but you need to keep that that focus so that subject getting those subject matters in we've also introduced the rotations and even sir condiments encirclements would also now as we have evolved mean that we reimburse for that right and because we've involved we've evolved to a process we have just now incorporated b3i in the independent company and that's capitalized and if you've as an independent company we're actually a limited company held by shares so why would anyone give to a commercially

acting company anything for free and that's what we also do now whilst as we are capitalized we kind of we ask our customer base we want you future customers to engage and work with us and any company who engages not just a couple hours but a couple weeks or perhaps months some of its customer base needs to think about fair compensation for that and that's also what we do we formalized that into complement contracts and so that so for some of these that also allows them to say after some months oh this is something and I really want to do more longer term and it can become a career opportunity so you really had to approach this whole project like a start-up almost

absolutely we also just moved to a separate office we did a selection of different locations from u.s. to Europe ten different races to Europe and it came down to a or at least of three we landed in Switzerland Siri strongly insurance Margaret well a reputable regulator good talent based not just insurance but also large tech players Google and the likes Google has its second largest European operation outside California second largest global operation starts to develop the scene here starts to develop quite some blockchain expertise as well Bogdan Zook

and in Zurich so yeah those were some of the arguments that led us to come and settle here we literally a month ago also went into an office it's a interesting name and that location is called thrust square a group of entrepreneurs or one entrepreneur in particular took the initiative to just organize one Innovation Centre we are in there surrounded by only other nothing but rock chain startups but I mean has that ever happened before that you know a reinsurance company with that kind of you know volume has been working neck to

neck with startups let's take a quick break for a message from our sponsors crypto storage is part of the crypto finance group providing services for professional financial intermediaries and therefore bridging the gap between traditional markets and blockchain technology the storage solution offered by crypto storage raises market standards by introducing a new security paradigm which features two layers of dedicated and redundant hardware devices this setup allows for a dedicated independent and highly flexible Multi signature framework all transactions can be independently reviewed and approved on a dedicated tamper-proof hardware the hardware security module the tamper

proof signing devices and the tailored software solution are all developed by leading Swiss providers with vast experience in finance and IT security to learn more visit WWF destroyed GH has that ever happened before that a reinsurance company with that kind of you know volume has been working neck to neck with startups perhaps not that I know of we we in your in your careers must be first for me first so in as we were trying in this in this joint venture period we were in Munich there's also and many cities have these startup later that we were in a place called

where kinds then there are the ants and Deloitte and a few others it's one of these innovation places where different large companies have their innovation floor to try something out this has that plus the fact that we are as a start-up also we are ourselves a combination of the different participating insurance companies and we want to create something that's awful you for the entire market that's surely unique how how do you fund the b3i so it's in Switzerland or Germany this the form is it's called AG which is cents for an equivalent to a limited company held by

share so it is it has currently 13 equal shareholders who have funded it sufficiently with I would say seed capital so we will just started and that that brings us through most of the current year but we have laid out we have a product roadmap for the next two and a half years you don't build a platform for the entire industry or lines of business in less time than that and therefore we have a funding proposal so-called information memorandum to all interested parties in the insurance industry so then we're going now to a funding process so that besides the seed capital which gets us out of the starting blocks

we have the full funding to take us through the next further two years of development so that that there will be a capital increase and that's what we're working on from now till summer of this year did you also ever consider new ways to raise capital such as maybe in you know a pre-sale or a token sale the good point we did not and I know there's there's others who are doing that in interesting ways I think our colleagues it a risk for example I think that's quite innovative interesting idea we have not at this point that would perhaps be have been too much in one go

to to absorb in terms of innovation the product itself and then the way you fund it as well for our industry but I could see over time some potential use of tokens so the funding will do in a fairly classical way I think as we evolve there may be use of tokens especially in the way there's a whole settlements happen of you know you pay me premium then I pay you claims and then there's why wouldn't we especially in a business-to-business have certain nothing and why would that always have to be to be a normal field currency there that's an interesting concept I think the use of of service or utility tokens or any type of tokens that could

be of use in basically settling reinsurance indemnity or insurance it's it's um it's this something you're piloting as well no honestly we are not yet this is as we will look at the actual the whole payments engine which currently we are planning to do with normal fiat currency but it's on the longer-term roadmap something at Summit set that at some point we just should relook at some later point that's more like the further crystal ball thinking honestly I was just giving that as an example because it's it these are suggestions

a wily user group that we've been given to just concern to consider over the longer term do you see further use of blockchain technology in the insurance business interestingly and I think it's I do and and it's interesting to see how it comes directly from the ending juror so as an example you see these mobility platforms the lack of uber or grab their Asia equivalent data etc one US company recently acquired 2.5 million motor policies by making a deal with grab so you get very quickly access to a large

number of motor policies they're all they're all digital already the uber drivers are grabbed and companies are starting to realize ok we can be much more innovative of how how we deal with all those data in the old way we would have taken these 2 million pieces of paper or data files and load in some proprietary system etc this is an as an as a platform provider we can deliver great service to bring such new business models quickly up to market in dominant life and health side for example I recently heard that the United States sea of all places does not have one register of death certificates which

might sound a bit morbid but it's something that's quite problematic for a life insurance is in in the US and we hear that so we hear people talking about I think good things as such I would say personally my motivation is not so much to promote that this technology or blockchain is the Holy Grail but if we can make people's lives better and makes people which it is if it's already in the in their circumstances that people are when sad things happen in life it's even it's unnecessary that we should have administrative complications around proving something like a death which is

practically what you're doing it's better proving at birth well that even is also problematic if you see how many countries don't have birth certificates and then we can go on countries that cannot even have home ownership proof in South America or India so those are real life problems and that I think is really even more exciting and that is what people should think first of and what I see indeed is it leading people to come with very innovative insurance solutions because if birth that ownership loss of a crop through drought those are real life things especially in emerging markets that people suffer by and all of these

things rely on trustworthy data to prove the event that has happened and increasingly not new technology so called Internet of Things etcetera can help to give an accurate immutable source of those events when and what happened and display that or secure that on one common network and that's that's a good way of people that's what insurance should think of new makes be makes people live without with less sorrow and deal with insurance in the way that it really should focus on not the administrative distractions in general do you think the insurance

industry is quite open to technology yes I know the know is that it's a fairly long tail industry so as you hear about these systems haven't been built X years ago and there's some times internally in the big houses people who are cling too much to their system that they have built and then there may be position is tied to but the yes is from a refreshing new thinking's with some of the examples I was saying if if the market if the client is especially the new generation of client if the high-growth marketing countries that I mentioned makes it so clear to eat that even the blind and the Deaf will get it that yes becomes much

so overwhelming that you can't hide yourself behind or 20 year old COBOL system that you want to amortize for another five years then these arguments quickly go away what have you learned personally since you started with with blockchain technology in your work a mate man I will perhaps mention one that's a bit me perhaps counterintuitive so it may surprise some people that although we are talking about technology the key success factor here is by far not technology most of all it's the people now this sounds like maybe a bit fluffy so that to be more specific it's it's amazing how do although we are so

enabled these days by technology we can work remotely and we we think people's life is more on the smartphone and in real life to make projects like this happen the real teams that succeeds and then succeed and distinguish itself from the others is those that succeed to have people really work together why is it so important here we are in the consortium also very international multicultural people with different interests from a cultural background from the companies that come from and it tends to be underestimated how the differentiating factor between two teams one failing one

succeeding is the team that has the the Silver Bullet the magic sauce to make people tick together whether they come from China Switzerland US and whatever industry whether they claim to know it all in insurance where the others will say they claimed in the world of technology well as often the truth is somewhere in the middle and that good team collaboration I think will really be the final success factor how do you go about enabling that collaboration in part taking people out of the regular routine so that ends the incorporation of a separate company having CLE having a big picture on the one side but at the

same time disciplined enough to have near-term goals and an ongoing monitoring backward by with in our case both our shareholders are investors and the future users to avoid lending in the rabbit hole was there a skill gap - in the beginning a bit on the technology as we evolved more on making sure we have sufficient intake from the industry specialists the so-called subject matter experts as it takes a special way to convince an activity or a risk specialist to be engaged in this and think it really

requires those people who are sufficiently forward-thinking to say well 20 years of active area modeling with without whatever type of model you have and statistics behind it it's easy to say yep that what has worked the past 20 years why wouldn't that work the next 20 by think we if it takes a bit of special convincing so that these people most of those also understand within the very rich data world that we live today is we need to give go more and more to risk mitigation and prevention rather than just what what classical statistics

is you look at exposed you look at things that happened in the past you have some model of extrapolation to predict the future well that's a bit too reactive and the people that get that really jump on this ring how long how long overall have you been in the insurance industry 20-some years so it's been 18 years actively in the industry but the heat just a couple years before that in financial advisory I was primarily focusing on insurance already so some 20 plus years as your interest

maybe in in this industry has it maybe changed since the blockchain came about I think help brought me a bit closer back to the actual risk booze and then the underlying risks to do because as a reinsurer or commercial insurers you can you you can be a bit you can become a bit far away from things that really happen on the front I think that's what data does it goes it goes through all the steps of intermediaries much quicker what we and some of the examples I was giving before about the life and non-life industry so that that was quite a good experience to come back closer to

these like risk pools as we mean we call them and also very interactive engagement with our clients which given that I've mainly been on the finance and risk management site has been a bit different that that client experience has been very enriching mm-hmm as as an entrepreneur or maybe as a leader of this startup that that you started with into a 3 B 3 I do you have any role models that's a good a good question I think role models also in the near in our firm I've seen people come from very

skeptical to absolute enthusiasts I think that's also recreate quality so I have currently have one of my my best sponsors now was our our CFO our reinsurance CFO challenged me in the beginning was very good two years ago two years ago very bright and pointed questions and that asked forced me to stay on my feet but as he saw that we could we acted on these things and the thing kept growing he then turned into our biggest enthusiast I think that's that's a good quality that you can be very strong about your opinion but then you can also evolve if you see people are really addressing challenges in in

the industry there is or in in the broader in innovate there's a lot in general I just have a lot of role model or a lot of admiration for people who can really deliver or prove what it is to be an entrepreneur I think there's a lot of I would call entrepreneurial tourism these days we would like to go to conferences like to go to Silicon Valley but and you take some risk like what I do to kind of do intrapreneurship we didn't have a large company but I often remind myself and colleagues that people who live on their own personal savings for two years and two and then hope that after two years

something will come out those are probably the real entrepreneurs so those are role models as well for me okay that's what I did in general what would you like people to understand better about blockchain technology that it's not this mysterious thing only for dubious transactions I think that's a bit a big misconception sometimes of the remind people that if you look at money funding for very criminal activity if you look at the hard data actually the one key currency is the greenback this

is what these people use they don't need cryptocurrency it's it's just that's one just misconception then there are some misconceptions around the energy uses of course that the actual mining of core crypto currency is an issue that's but that's not relevant to the way we use the core blockchain technology and lastly maybe just this fallacy that it's it's making people making things even more in transparent or less secure perhaps inspired by the volatility will recently a lot of the crypto currencies well actually what we want to use this what would want to bring is by use of

this technology there is rather more transparency so if you look at an insurance contract pages and pages people signed something but then don't really look at it anymore or don't really understand what the terms and conditions are smart calm fracture to the opposite should make it rather more transparent was there anything I forgot to ask well maybe you should ask where we'll be in three years but we can revisit that like at the three is definitely we should be way out of the experimentation we should be a lot too much discussing technology anymore we should see really that insurance has become more affordable and

accessible for like entire communities who thus far could not even have dreamt of having proper access to affordable insurance so that's maybe done yeah the question we should ask you should we should discuss again in a couple years from now hope to have good answers thanks a lot Paul for taking time thanks so much for joining us today more info on our guests and our sponsors is in the show notes of this episode and on the podcast web site the blockchain and ask.com to help people finding podcast it's important that you download subscribe and give it a top rating and review on iTunes or on the podcast platform of your choice I'm Manuel staggers and I

thank you very much for listening you [Music]