When risks ebb and flow, how can insurance premiums adjust?
Marine insurance has not kept up with the digital era. Now’s the time for blockchain innovation to manage dynamic risk and boost global trade.
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.