Accounting giant EY said Wednesday that it plans to launch the first blockchain platform for marine insurance, alongside Microsoft, A.P Moller-Maersk and others.
The distributed ledger will be used to capture information about shipments, risk and liability, and to help firms comply with insurance regulations.
It will also ensure transparency across an interconnected network of clients, brokers, insurers and other third parties.
EY explained that its decision to secure marine insurance data with blockchain was due to a “complete inefficiency” in the sector.
“The reason we chose marine (insurance) as the starting point for this sort of market is mainly because of its complete inefficiency,” Shaun Crawford, global insurance leader at EY, told us via phone earlier this week ahead of the announcement.
Crawford said the industry was “over capacity” and that there was “a lot of cost to it.”
He added: “It’s facing high administrative burdens of managing and writing claims with a lot of paperwork. All contracts are signed multiple times. They go from ship to ship, port to port, through quite a journey.”
Distributed ledgers are groupings of data shared across multiple locations without the need for central administrators and other middle men.
The original blockchain was built to serve as the distributed ledger for bitcoin transactions. But various blockchain experts believe the technology can provide transparency for a multitude of different industries, not just the financial services.
“We’re not talking about a new currency here, we’re not talking about money. We’re talking about data aggregation,” EY’s Crawford added.
Maersk said the blockchain platform would enable the shipping giant to maintain a smoother relationship with the insurance market.
“It is a priority for us to leverage technology to streamline and automate our interaction with the insurance market,” Lars Henneberg, head of risk and insurance at Maersk said in a statement Wednesday.
“Insurance transactions are currently far too tedious and frictional. The distance between risk and capital is simply too far. Blockchain technology has the potential to facilitate the desired development that is long overdue.”
Blockchain could benefit wider insurance industry
Marine insurance has traditionally relied on physical contracts being shipped to and fro, from one port to another, in order to be eventually signed, according to EY.
The global research firm has worked closely with software security company Guardtime to develop the blockchain platform.
Guardtime said it expects to roll out blockchain to the wider insurance industry after its initial marine insurance deployment.
“Initially, we focused on marine insurance as it is well-suited to a blockchain solution as it has a complex international ecosystem, with multiple parties, multiple jurisdictions, high transaction volumes and significant levels of reconciliation,” Guardtime CEO Mike Gault told us in an emailed note prior to the announcement.
“But down the line we expect it to be rolled out across other areas of insurance markets — as there are clearly shared benefits and attributes. In fact, blockchain can be applied to any commercial or specialty line of business with high-value assets.”
Blockchain built on Microsoft Azure
The blockchain solution was built on Microsoft’s cloud platform, Microsoft Azure.
Cloud technology allows firms to store data and software via the internet rather than locally on a hard drive.
A proof of concept for EY’s digital ledger was completed in March.
“When we built the proof of concept, we built a prototype on Azure to make sure the whole thing worked and is secure, and now what we’re doing is building it,” EY’s Crawford noted.
“We provide that cloud service which we believe is one of the strongest ones on the market, and that’s why we chose Microsoft to work with.”
Guardtime said Microsoft’s cloud offered a secure network on which to build the blockchain.
“For any new system to be implemented it needs to be built using the right model, one that is robust, scalable and can co-exist with existing IT infrastructure or systems,” Guardtime’s Gault said.
“That’s what Azure and the cloud technology enables us to do, without comprising performance or flexibility, which is why it was so important to partner with Microsoft.”
Mark Russinovish, chief technology officer at Microsoft Azure, said that blockchain had the potential to be “transformational.”
“Microsoft believes blockchain is a transformational technology with the ability to significantly reduce the friction of doing business, especially streamlining business processes shared across multiple organizations,” he said.
He added: “Marine insurance is a prime example of a complex business process that can be optimized with blockchain.”
Insurers MS Amlin and XL Catlin also collaborated with EY on the project, as well as insurance industry body ACORD (Association for Cooperative Operations Research and Development).
The blockchain solution is set to be implemented from January 2018 onwards.
The race to create large distributed ledger network has become increasingly competitive.
IBM for instance announced it would partner with food giants like Nestle and Unilever in August, and use blockchain technology to trace the movements of food to avoid tackle contamination faster.
EY told Empire Media that its decision to make the announcement ahead of time was due to a host of other players making similar moves.