In our previous article, Distributed Ledgers, Blockchain, and Life and Health Insurance, we discussed the evolution of distributed ledger technology (DLT) and blockchain. We also shared use cases that have the potential to disrupt the life and health industry. In this post I will discuss how DLT use cases are developed, and I’ll share RGAX’s key areas of focus for exploring DLT within the life and health industry.
Distributed ledgers and blockchains use a combination of modern technologies, including SaaS (cloud-based Software as a Service), P2P (peer-to-peer communication), and advanced encryption standards to safeguard data and allow enterprises to communicate openly and safely across the Internet. Designing and constructing these networks may seem daunting, but as with all new technology, they’ll evolve over time.
Take for example, the iPhone’s development trajectory. Before it could reach its full potential, new technology—3G, lithium ion battery technology, sensors for camera, cyclometer, etc.—had to be developed and then incorporated into the device as it evolved. Even today, new technologies and elements are incorporated into the device to improve upon pre-existing version standards.
Quite similarly, to design and build a quality distributed ledger or blockchain business network, it’s essential to understand the common elements that make up a typical DLT network.
Common Elements of a DLT Network
- Business Community—a group of people or organizations working toward a common goal
- Nodes—devices connected to the network
- Consensus—an agreed upon method of approving transactions and sharing data
- Protocol—a specific set of software rules, terms, conditions, and parameters defining how the community can interact with the network
- Governance—the business network’s decision-making structure
- Smart Contracts—self-executing pieces of code that govern and protect transactions on the network
- Decentralized Application (dApp)—a network interface that allows the community to interact with the business community on a DLT network
At RGAX we work alongside our client partners to build, test, and launch DLT solutions through joint use case development to unlock new opportunities. Our approach is straightforward: we target specific and compelling client use case opportunities, and we bring their vision to life using our deep subject matter expertise and enterprise blockchain resources.
Currently, RGAX is focused on exploring DLT technology in these three primary areas:
Cession and Retrocession Transactions
- The operations underlying reinsurance transactions across the cession and retrocession value chain are ripe for improvement. We believe DLT could have positive industry-wide impact by automating business rules and logic via “smart contracts.” Smart contracts are nuggets of code embedded in documents (in this case, reinsurance contracts) that trigger business rules, which reinforce the contract’s legal terms and then execute the contract based on satisfying its rules and terms. With smart contracts, bilateral or multilateral transactions can be executed automatically between counterparties.
- To test this use case, RGAX collaborated with Mutual of Omaha to complete a proof-of-concept exploring reinsurance workflows on a distributed ledger (aka, permissioned blockchain). The goal was to demonstrate how smart contracts can execute rules based on a reinsurance treaty. This joint effort not only reiterated the opportunities DLT has to radically change how the life insurance industry conducts business, but also demonstrated the growing appetite within the market to explore these changes. Read more about the proof-of-concept here.
Reinsurance—Administration and Claims
- The same smart contracts principle can be applied to processing claims using distributed ledger technology. By using smart contracts code to embed rules for processing a claim—receipt of a death certificate; approval of an administrator or signatory; or even the claims submission by the policyholder—the workflow can be triggered to launch the process of paying the claim. Process automation driven by smart contracts can both accelerate claims payment to the beneficiary and serve as the “single source of truth” for all B2B parties involved. Every claim processed on a distributed ledger platform is part of an immutable (permanent) record that is true for all participants involved: reinsurer, carrier, agent, and policyholder. Employing DLT could therefore eliminate paper-based processes, reconciliation, delays, and errors.
- As the insurance industry moves towards automation based on smart contracts, an opportunity will emerge to create a convenient, transparent, and networked insurance marketplace in which both retail and B2B transactions (purchases, sales, claims, treaties, and more) can occur seamlessly throughout the entire value chain: policyholder, agent, carrier, and reinsurer.
DLT is a combination of technologies that have the capacity to integrate with existing systems and innovate on a large scale. The key to discovering its hidden value is partnership. We’ve experienced this firsthand when collaborating with companies like Mutual of Omaha. Working together, we can build and launch the next generation of insurance Internet. By exploring new business models and integrating with modern technologies, we have a significant opportunity to transform the insurance industry together.
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