Standard Chartered, IBM and American International Group (AIG) are piloting the first “smart contract” insurance policy that uses blockchain technology, according to a joint statement from the firms.
The pilot solution was built by IBM, based on the Hyperledger Fabric framework, and was executed by AIG and Standard Chartered. The three parties converted a multinational, controlled master policy written in the UK, and three local policies in the US, Singapore and Kenya, into a “smart contract” that provides a shared view of policy data and documentation in real-time.
“As a global bank we have to ensure consistent, trustworthy and secure financial transactions, be that as part of our business or as customers ourselves,” said Emily Jenner, head of insurable operational risk at Standard Chartered.
“By creating a process by which we can arrange multinational insurance contracts through blockchain we not only have transaction security but contract certainty across multiple business locations,” Jenner said.
Blockchain technology, which refers to a transparent shared digital ledger, records and tracks events associated with payments in each country related to the insurance policy. It allows for visibility into coverage and premium payments at the local and master level, as well as automated notifications to network participants following payment events, according to the statement.
AIG’s commercial CEO, Rob Schimek, said the pilot proves that blockchain “has a powerful role to play in the future of insurance”.
Marie Wieck, IBM Blockchain’s general manager, added that smart contracts can help address “tough regulatory requirements across different markets”.
Indeed, industry experts have said that smart contracts – swaps that automatically execute trades – present an opportunity for blockchain at private banks, as they can be used to reduce the need for intermediaries and thereby reduce spreads.
“Financial institutions can potentially benefit from a more streamlined, efficient and cost-effective securities issuing and servicing process,” Manoj Bhojwani, head of IT Asia Pacific at Credit Suisse Private Banking, said last year about the possible uses of blockchain at private banks.
“These programmable stocks, bonds, and other instruments live on the chain. As autonomous agents, they can pay their own coupons and dividends, self-register their owners, carry out their own reporting etc. This would bring down the cost of securities issuance and service.”
While blockchain is piquing a fair amount of interest among private banks in Asia, experts believe it is still early days for the technology.