Financial Services

How many industries can you name that are still based on the same working practices and business models that they had in the 17th century?

Despite the wealth of modern technology now available, marine insurance, a critical component of the global trade ecosystem, is still an industry based on the certainty of paperwork, emails, weather forecasts and a large amount of guess work. 

EY and Guardtime are working with Microsoft and key industry players to bring the industry into the next wave, to reduce risk and friction in global trade and thereby facilitate global economic growth.

A risky business

Marine insurance is characterized by the dynamic nature of the risk taken on by insurers.

“There are a lot of paper contracts written between insurers, brokers, shipping companies and captains of ships that often won’t be in place in time until the ship has left Belgium and arrived in Sydney,” says Shaun Crawford, EY Global Vice Chair – Industry. “It’s all based on experience and historical examples. The risk can change markedly as a ship travels from A to B. It may sustain damage, enter war zones or change its flag or captain.”

Any such variations require all parties connected to a policy to update their records. With all that paper floating around, this process is slow, open to errors and fraud. Error and uncertainty adds cost for all stakeholders at every stage of the value chain.

To keep pace with the next wave of the industry, marine insurance needs to modernize through digitalization, automation and increased transparency.

“From an insurer’s point of view they don’t have access to all the information underpinning the risk they’re taking. As a result they have to put a fair chunk of capital on balance sheets in case of the worst scenario ­­– a ship going down,” says Crawford.

Beyond a proof of concept

After the conclusion of the 20-week proof of concept, EY and tech collaborator Guardtime established a joint venture, working closely with Microsoft, with the aim of servicing clients with the resulting product. Getting to this end result was a learning process for EY and its collaborators.

“Our blockchain platform has been specifically tailored to the business issues facing clients,” says Crawford. “Through workshops with clients we gained a deep understanding of the practical needs of the community who wish to benefit from the platform and we were able to deploy that understanding so that the solution is practical and intuitively fit for purpose. This was a major learning step for us, but at the end of the day what we built was for the clients.”

Developing the platform required a globally connected effort:

• Guardtime's teams were based in Estonia, the UK, Netherlands, and the US and the nature of the shipping industry required coordination across EY teams on both global and local levels.
• EY has teams working directly with end users, insurers and reinsurers in Europe, the US and Japan.
• EY tech production teams based in India and Poland are working closely with Microsoft to coordinate the platform’s implementation within client environments.

The service that resulted from the proof of concept has added significant value for businesses throughout the value chain of marine shipping. Maersk, the end client for insurance services, will benefit directly from more accurate premiums and faster claims processing. Insurers and reinsurers see the accuracy and quality of their data dramatically improved, with automation vastly reducing time-consuming administration.

This frees up employees to develop value-added services and push forward innovative solutions for clients and their own business. The visibility and transparency created by the blockchain-enabled platform generates a greater level of trust between all companies in the value chain, opening the door to more collaboration and innovation.

Beyond the insurance world, there’s no doubt blockchain is rapidly entering the mainstream, with other types of financial institutions around the world beginning to implement services based on the technology. However, understanding of blockchain and its potential is still a major barrier to greater implementation in businesses.

Until recently, the technology was perhaps most-often associated with bitcoin and other digital currencies, but for the insurance industry it’s the flow and visibility of data that makes distributed ledgers and blockchain technology so potentially revolutionary.

Introducing a hugely disruptive technology to any long-established industry with existing databases and relationships will inevitably be challenging. This is why collaborations with Maersk, who are actively looking to drive innovation and identify digital transformation opportunities in their industry, proved so crucial in bringing the platform to fruition.

“We’re disturbing the status quo culturally and all the existing processes that make up that culture,” says Crawford. “Why would the industry want to change and be the first movers? The industry won’t move unless you bring the client to the table.”

The potential of this platform goes beyond specialty insurance and sets a precedent and method for companies and sectors to converge and fuel the next wave of innovation.

“This is not just about insurance,” says Crawford. “It’s about connecting sectors together with convergence around new ecosystems. We’re leveraging shipping data to allow insurers  and brokers to create new products and service propositions. What we’re doing with shipping now, we see growing into other sectors.”

The ability of blockchain to create a digital record of a real-world objects lends itself to any sector where there is a supply chain of physical goods – from automotive to aircraft manufacturers to diamonds.

“Businesses should think about a completely new value chain,” explains Crawford. “This is not automating or digitizing an existing system; this is about connecting people, sectors and different industries, and helping them to find ways to disrupt the current model for the benefit of all.”