The application is designed to manage all the ceding data associated with a life insurance policy on an individual. Ceding of a policy occurs when the face value of the policy is more than the risk the insurance company is willing to retain. The risk is shared with one or more reinsurance company(s). Premiums are shared too. The blockchain will have one wallet with policy data that all carriers can retrieve and a separate wallet with the data relevant to each reinsurer that only their company can retrieve.
Each insurance company maintains this database of policies and ceded amounts. Monthly, the data is transmitted to/from the primary insurance company to the reinsurance companies. The data is sent in a csv file which limits the amount of information that can be included and still maintain the private information.
When a claim is submitted, the primary insurance company must notify all the reinsurance company(s). If the reinsurer retroceded some of the risk, the reinsurer need to pass the information to that company. This process results in multiple people handling the information.
This application provides a single source of policy information that can be shared across all companies involved in insuring the policyholder. Transactions can be processed immediately which provides better information about the incoming revenue and improves the forecasting and investment planning processes. Also, because there is a single data source, companies can reduce their data storage and management costs.
Because of the encryption tools, sensitive data can be added to the blockchain that could not be in a csv file. This data is in a policy wallet and available to all insurance companies involved in the transaction. With the management of the treaties in the application and the more complete data, the application reduces the number of policies that have to be audited. Audits ensure the information from the insurance provider and the reinsurer agrees. When a claim is submitted, the details can be entered into the application and immediately available to all the insurance companies in the blockchain of the policy. This option reduces the overhead involved in settling the claim.
USE OF BLOCKCHAIN TECHNOLOGY
The application uses the blockchain technology to store all the policy details and the insurance companies bearing the risk of the policy. It can be used to manage the ceding of the face value and the processing of the premiums to the ceding companies, as well as claims.
POTENTIAL SIZE OF THE MARKET AND COMMERCIAL POTENTIAL
According to the NAIC, in the US Market 9.5 million individual life insurance policies were purchased in 2014 and there were 143 million policies in force. These policies are managed by 830 insurance company and approximately 1.5 million home office personnel. Approximately 89% of these policies are reinsured. This application could be implemented globally, making the potential size of market exponentially larger.
If a subset of the insurance companies used the application, the benefits would be significant. The overhead of managing, storing and auditing a policy easily adds up. Because the costs associated for each of these items varies by company, we cannot provide potential dollar savings at this time.
At the Hackathon, we have developed the application for a proof of concept. We could successfully input policy values, compute the reinsured amount for each reinsurer based on the treaty between the primary insurance (ceding) company and Reinsurance Company and build a wallet for each company with common policy data.