Blockchain

accelerates
insurance
transformation

KPMG International

kpmg.com
 The promise of blockchain
These days, it seems everyone wants to the insurance sector starts to rapidly
talk about blockchain. Major insurance focus, invest and deploy blockchain
companies are investing into it; industry technologies. Insurers who ignore this
Blockchain consortiums are forming around it; new architecture will end up playing
technologies investors are pouring in capital. But — catch up with higher costs.
only 4 years ago — nobody had heard
could help of blockchain. And only a very few
At KPMG, we think of blockchain as an
architecture for open innovation. It is
enable greater understood the concept of a digital ledger,
one of the key delivery technologies that
let alone its application to the insurance
efficiency, growth sector. How things have changed.
could help connect enterprise technology
systems with new-age technologies
and competitive The hype suggests that blockchain will such as wearables, drones and Internet-
advantage. revolutionize the industry, enhance of-Things (IoT) connected devices.
trust, disrupt the value chain and create
Insurers are no strangers to disruption.
massive new growth opportunities. Yet
Even now, the impact of catastrophe
the evidence suggests that few (if any)
bonds (CAT) bonds on the reinsurance
insurers have developed a full-scale
market is having unexpected
blockchain capability.
consequences on direct insurers. And
The reality is that these are still ‘early we believe that blockchain architecture
days’ for blockchain in the insurance will accelerate this type of disruption
sector. However, clear evidence from across distribution, insurance and
across the financial services industry capital distribution.
strongly suggests that blockchain
Blockchain may not be driving competitive
technologies could help enable greater
advantage today. But it will certainly
efficiency, growth and competitive
underpin the sector’s growth in the future.
advantage. It will not be long before

Blockchain snapshot
What is blockchain? the conditions to enable faster, more
accurate and efficient processes. Yet it
Blockchain is essentially a permanent and
also has the potential to disrupt existing
immutable record of transactions within
business models by eliminating the need
a network. At the root of the blockchain
for intermediaries and more efficiently
are ‘digital ledgers’ that are distributed
connecting counterparties in a way that
amongst all network participants to serve
allows them to transact without the need
as a common source of truth.
for a trusted central authority.
When a transaction is conducted, it is
Who is investing?
recorded in sequence in the digital ledger
and these ‘blocks’ are then tied together While blockchain technology can be
into a blockchain. Since the system applied within virtually any industry,
relies on references to other blocks that financial services organizations have
are cryptographically secure within the been the most active innovators. In
digital ledger, it is almost impossible fact, since early 2014, more than 40
to falsify. Most observers therefore financial services firms (or their strategic
believe the system to be immensely investment arms) have invested in a
more trustworthy and transparent than blockchain or related startup. And this is
traditional approaches to sharing data spreading to other areas of finance like
across a value chain or even within insurance (supported by initiatives such
an enterprise. as B3i)1 and investment management
(with the Nimbrix consortium). The real
Since blockchain provides the mechanism
economy is getting in on the act too, with
to establish a single version of the
significant activity in the government,
‘truth’ that is shared in near real-time
healthcare, supply chain and real
within a trusted framework, it creates
estate sectors2.

1
http://www.econotimes.com/five-major-insurers-and-reinsurers-team-up-for-blockchain-initiative-b3i-355513
2
https://btcmanager.com/news/business/fintech-startup-nimbrix-partners-with-microsoft-and-kpmg-to-launch-asset-management-blockchain-consortium/

2 | Blockchain accelerates insurance transformation

© 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
How is the insurance sector modernization plan5. Other players — buy-in. Within insurance, the most
responding? including Allianz, AIA, New York Life, influential blockchain consortia is
Mitsui Sumitomo Insurance Group currently B3i, announced by Allianz,
Some of the most proactive insurers are
(MSIG), Swiss Re, John Hancock Aegon, Munich Re, Swiss Re and
looking to blockchain to help drive their
and Manulife Financial — are testing Zurich in October 2016. This initiative
wider transformation agenda within the
potential applications of blockchain in the is aimed at sharing ideas, testing use
context of the ‘data-driven fourth industrial
insurance market. cases and pursuing concepts related to
revolution’. These first and second-
the wider insurance sector.
movers see the value in participating in Blockchain use cases may fall into two
the broader financial services blockchain broad categories:
ecosystem. But they also see blockchain
1. Internal use cases: These do not Blockchain can help
as an opportunity to improve efficiency, insurers drive value
rely heavily on network effects but
lower the costs of transaction processing,
typically aim to improve internal through:
enhance the customer experience,
efficiency in order to reduce cost to
improve data quality, increase trust — more efficient processes
serve. But our experience suggests
between parties and support auditability,
that these initiatives can also deliver — improved pricing and risk
among other benefits.
significant top-line revenue growth. management
Many have been investing to support Indeed, our work with leading
— enhanced trust via better claims
their vision. AXA Strategic Ventures organizations suggests that the top-
experience
(along with other partners) invested line growth generated by internal
around US$55 million into a blockchain process simplification may exceed the — greater financial inclusion
startup in February 20163. USAA invested expected operating cost reduction. —  demand for new insurance
around US$75 million into a digital products and services
2. Industry use cases: These typically
currency platform in 20154. And Lloyd’s
rely more on network effects and — use of new ‘smart’ contract
London Market has included blockchain
require wider industry or cross-industry models.
as part of their target operating model

The march of fin services firms into blockchain startups

(10/20/2016)6
NewYork
Life
Mastercard CITI
Gibraltar Ventures BNP Paribas
CIBC
Transamerica ICAP
BBVA Ventures Ventures ASX
MSIG
American Express Deutsche Börse Group bpifrance
USAA The Bank of
Ventures
Tokyo-Mitsubishi J.P. Morgan
New York Stock UFJ, Ltd svb Capital Standard
Exchange fiserv. Ventures CICC Chartered
kfw
Capital One UMB CreditEase
Goldmann PNC
Growth Venture
Wedbush Sachs Reinventure Digital Ventures
Nasdaq DTCC
Citi Ventures ABN Amro FISCO
F-Prime CME Group Accenture Western
SEB Venture
VISA Innoventures Union
Capital
Santander Money Partners
SBI Group AXA Strategic Ventures

Jun-14 Jan-15 Jun-15 Jan-16 Jun-16

Date of deaI
www.cbinsights.com

3
https://www.axa.com/en/newsroom/news/axa-strategic-ventures-blockchain
4
http://www.businessinsider.in/Bitcoin-Startup-Coinbase-Is-Raising-75-Million-In-New-Funding/articleshow/45956614.cms
5
http://www.coindesk.com/lloyds-sees-blockchains-potential-insurance-markets
6
https://www.cbinsights.com/blog/financial-services-corporate-blockchain-investments/

Blockchain accelerates insurance transformation | 3

© 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
 Applying blockchain to insurance
Smarter solutions for smarter across all counterparties. Claims data
insurance is shared across all counterparties.
Identities and contract provisions are
Proactive insurers We believe that blockchain will play a
immediately verified. Payments are
major and disruptive role right across the
are looking to insurance value chain. From customer
automatically made. And, as a result,
less adjudication and negotiation is
blockchain to help onboarding and ‘Know Your Customer’
required and costs are minimized.
(KYC) requirements through to claims
drive their wider processing and adjudication, the potential Blockchain projects involving traditional
transformation use cases for blockchain in the insurance bond issuance already envisage smart
sector grow each day. contracts that pay interest automatically,
agenda. in addition to using the blockchain
One of the more disruptive applications
architecture to distribute capital. It would
of blockchain is the development
be a simple matter to extend this capital
of ‘smart contract’ models. Smart
markets applications to areas such as CAT
contracts contain self-executing
bonds in insurance — whereby claims
protocols that work with a blockchain to
are automatically paid if an event occurs.
enforce the performance of a contract

Insurer

Industry body Reinsurance

Smart
contracts

Regulators Sales

Insured

Popular use cases for insurance — 

Claims management: Automate
the verification of coverage and
— Travel and life insurance: Develop
streamline claims settlement to
a ‘pay as you travel’ insurance
improve operational efficiency and
model that provides immediate
remove costs.
payouts in the event of delays or
cancellation. — 
Reinsurance claims: Allow for the
automation of straightforward claims
— 
Personal accident insurance:
triggered by smart reinsurance
Create a transparent and seamless
contracts and models.
claims journey that dramatically
improves customer satisfaction. — 
Surety insurance: Create a ‘golden
source’ of information on surety
— 
Record keeping: Leverage
bonds that is available in real-time to
blockchain to create, organize and
all participants.
maintain company records in a single,
reliable and accessible repository. — 
Peer-to-Peer insurance: Build a
peer-to-peer network to establish
— 
Digital identities: Use blockchain
smart contracts without the need for
data and digital ledgers to digitize
an intermediary or administrator.
and validate customer information
and improve compliance.

4 | Blockchain accelerates insurance transformation

© 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
What is going to change?
At KPMG our teams have spent time mapping the impact of blockchain across the insurance operational ecosystem and have
identified key areas of change for activities throughout the enterprise, see table below.

Illustration of insurance key activities

Insurance
Current activity Future activity
processes
—— effect sales —— policy as a smart contract sale
—— coordinate sales by establishing sales —— sale for oracles, innovative coverage, riders and
Policy sales territories, quotas and goals payout triggers
—— establish training for reps —— more insight into customer for coverage insights
—— determine potential customers
—— capture NOL —— accident notifications by smart contract oracle
—— determine liability for loss or damages initiated prevention and recovery workflows
Incident
—— correspondence management
management
—— benefit calculation
—— customers interactions
—— information gather for purpose of setting claim —— claims validation and loss determination by smart
Claims —— settled claims review contract, oracles, smart underwriting and/or
management —— report irregularities blockchain insight
—— legal counsel consultation
—— forecast risk and liability for payment of future —— real time data flows and claims determination
Reserve benefits provide faster insights for reserve calculation
calculation —— ascertain premium rates and cash reserves impacting support processes

—— reduce exposure to loss —— industry consortiums to assess retrocessions in

—— risk transfer for higher limits an automated manner using smart contracts
Reinsurance
—— income smoothing by diversification
—— surplus relief, arbitrage, expertise
—— evaluate risk and exposures of potential clients —— risk liability reduced along with premiums and
Underwriting —— determines risk, coverage and premium claims payout. Multiple underwriting models to
evolve
—— special Investigation units to determine —— claims fraud determination with quicker
Fraud, risk insurance fraud turnaround reducing recovery risks
determination —— determine falsifying facts of an accident
—— internal fraud determination

Some impact Moderate impact Significant impact

The evolution of claims management to data timeliness are constant disputes and the need for additional
in the blockchain environment challenges. reviews by claims adjustors. Claims
—  Tomorrow: Claims will be payments will also be automated.
— Today: Claims data is inefficiently
shared within the insurance settled using smart contracts — What changed: Reduced
organization, with agents and that streamline the verification of administration costs, improved speed
third parties such as repair shops. coverage and payment for repairs for claims payment and closure,
Processing typically involves at authorized repair shops. Claims greater customer visibility into claim
significant manual data entry and are filed and adjudicated using the information, new and innovative
duplication across the value chain. coverage information recorded on business models.
Human error and differences due the smart contract, thereby avoiding

Blockchain accelerates insurance transformation | 5

© 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
 Case study: Mobile insurance
Unlocking When a regional insurer wanted to identify and qualify a mobile travel
the value of insurance use case for blockchain, they called KPMG to help create a robust
blockchain must business case and quantify the return on investment. Working with our
ecosystem partners, we helped refine the use case and create a prototype that
start with intense is currently being piloted within the organization. By digitizing their data and
collaboration workflow and distributing it using blockchain architecture, the insurer expects
to achieve a number of key benefits including:
across the — reduced incidences of fraud: The system allows for quick and easy external
value chain. verification when an event has occurred
— quicker real-time payments: Invoices can be scanned and payments
disbursed immediately
— enhanced customer experience and acquisition: Enables the direct mobile
channel allowing the insurer to sell to last-minute buyers
— a superior claims experience: Trust in the brand is improved leading to
additional sales and enhanced reputation.

Taking the next steps

Start collaborating; start winning and impact of other enablers, such as
Five actions executives big data, digital labor and analytics, will
There are many ways that insurers can
can take now start preparing for the disruptive impact
also be key to maximizing the value of
blockchain investments.
1. Educate yourself, your executive of blockchain today. Some are already
team and your decision makers setting up incubators and joint ventures Those that start participating in these
about the disruptive potential aimed at developing new concepts. types of collaborations and focusing
and threat posed by blockchain. Others are investing into supportive on business-led solutions and new
technologies and capabilities. Many are technologies will be well positioned to
2. Develop a strategy and roadmap
also investing resources and capital into take advantage of new opportunities as
for implementing blockchain
pilot projects and proof of concepts. they emerge.
within the enterprise and with
other third parties. While these are all important steps, Return on investment: KPMGs
we believe that unlocking the value approach
3. Nurture, foster, incubate, partner,
of blockchain must start with intense
invest or acquire blockchain KPMG firms offers a lifecycle-based
collaboration across the value chain.
and digital ledger skills and approach to the development and
Insurers will need to cooperate
capabilities. delivery of blockchain solutions in over
closely — sharing technology platforms
30 countries.
4. Get involved in industry and standards — to drive adoption. They
blockchain and digital ledger will need to develop the ecosystem Our teams blend conventional business-
partnerships, consortia, of technology providers, start-ups, based consulting applied through a
standard setting bodies and investors and regulators. And they will blockchain lens to drive return-on-
other collaborations as early as need to work together to overcome the investment (ROI) and robust business
possible. barriers slowing adoption. cases. By combining the capabilities
of our keen technical developers with
5. Identify and qualify the use They will also need to take a business-
a broad ecosystem, our teams create
cases based on a 100 percent focused approach, both within their
market-leading prototypes which can
focus on return on investment four walls and across the insurance
scale, industrialize and integrate into the
and a robust business case. ecosystem. Understanding the value
existing organization.

6 | Blockchain accelerates insurance transformation

© 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
Authors
Eamonn Maguire, Global Financial Services Lead, Digital Ledger Services,
KPMG in the US
Eamonn leads KPMG’s global digital ledger services practice focused on Capital Markets and regulatory
requirements for client platform. He has more than 25 years of industry and consulting experience and
has been prominent in assisting clients in the regulatory arena both domestically and globally.

Wei Ng, Global COO, Digital Ledger Services, KPMG International

Wei is a Global Executive for the Financial Services Chairman in KPMG. He has over 20 years financial
services experience in industry and as a consultant, including developing new business models and
innovative services for KPMG and its clients — both organically and inorganically. He is a Fellow of the
Institute of Chartered Accountants in England and Wales.

Michael Adler, Insurance Lead, Digital Ledger Services, KPMG in the US

Michael has significant experience working with leading insurance companies to drive transformation
leveraging digital, data, analytics, technology and best operational practices. He created and led
the industry’s first and leading practice around cognitive technology focused on financial services
and insurance. Michael has a proven track record of delivering business value on large, complex
transformation programs leveraging leading and innovative technology capabilities in conjunction with
an insurers existing capabilities.

Dennis de Vries, Lead, Digital Ledger Services, KPMG in the Netherlands

Dennis leads KPMG Digital Ledger Services in the Netherlands. He has more than 20 years of industry
experience including external audit, risk management, compliance, internal audit and business
management assignments. In 2014 he performed the first blockchain research at ING Bank.

Jan Reinmueller, Lead, Digital Ledger Services, KPMG in Singapore

Jan heads the Digital Village program at KPMG in Singapore. He is responsible for turning opportunities
into customer-centric products and serves as an innovation partner for corporate clients. As part of
KPMG’s Digital + Innovation team, Jan helps to contextualize and commercialize start-up innovations
to address new market opportunities. He brings international experience and knowledge of markets in
the US, Europe, India and ASEAN. Jan is also a key mentor for Infocomm Investments and Singapore
Management University’s undergraduate program for innovation and entrepreneurship.

KPMG’s Digital Ledger Services has Partners and professionals operating in more than 30 countries to
provide life-cycle based blockchain consulting combined with technical prototype development.

Blockchain accelerates insurance transformation | 7

© 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
Contacts
Gary Reader Matthew Lewandowski Brent Dalager
Global Head of Insurance and EMEA KPMG in the US Scandinavian
Insurance Coordinating E: mlewandowski@kpmg.com Digital Ledger Services Lead
Partner KPMG in Denmark
KPMG International Oliver Cunningham E: bdalager@kpmg.com
E: gary.reader@kpmg.co.uk KPMG in Brazil
E: oecunningham@kpmg.com.br Nevellan Moodley
Eamonn Maguire KPMG in South Africa
Global Financial Services and Leonardo Vinett E: nevellan.moodley@kpmg.co.za
North America Lead Digital Ledger KPMG in Chile
Services E: lvinett@kpmg.com Pablo Orbiso
KPMG in the US KPMG in Spain
E: emaguire@kpmg.com E: pabloorbiso@kpmg.es
Europe, Middle East, Africa
Wei Ng Chris Mills
Sven Korschinowski
Global COO KPMG in the UK
KPMG in Germany
Digital Ledger Services E: chris.mills@kpmg.co.uk
E: skorschinowski@kpmg.com
KPMG International
E: wei.keat.ng@kpmg.co.uk
Catherine Philippe Asia Pacific
KPMG in France
Laura Hay
E: cphilippe@kpmg.fr Mandeep Sandhu
Americas Coordinating Insurance
KPMG in Australia
Partner
Said Fihri E: msandhu@kpmg.com.au
KPMG in the US
KPMG in Luxembourg
E: ljhay@kpmg.com
E: said.fihri@kpmg.lu Longhua Zhang
KPMG China
Simon Donowho
Omar Mahmood E: longhua.zhang@kpmg.com
Asia Pacific Coordinating Insurance
Middle East Digital Ledger
Partner
Services Lead Jan Reinmueller
KPMG China
KPMG in Qatar KPMG in Singapore
E: simon.donowho@kpmg.com
E: omarmahmood@kpmg.com E: jreinmueller@kpmg.com.sg

Americas Umair Hameed Tracey LI

KPMG UAE KPMG in Taiwan
Mike Adler E: uhameed@kpmg.com E: tracyli@kpmg.com.tw
US Digital Ledger Services
Insurance Lead Dennis de Vries
KPMG in the US KPMG in the Netherlands
E: michaeladler@kpmg.com E: devries.dennis@kpmg.nl

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Publication name: Blockchain accelerates insurance transformation
Publication number: 134019-G
Publication date: February 2017