Blockchain – a distraction we don’t need?
The B3I consortium of insurers continues to invest in blockchain technology and there was a public presentation at the Monte Carlo Rendezvous on Sunday. I didn’t attend, only getting to MC on Monday, but spoke to people who did. The verdict? Not generally impressed. Why? Technology didn’t work, but we have all been there, if it is going to fail it will fail on a demo. The other criticism was the use case of signing down. It just wasn’t a realistic use case and I heard gave the whole thing a feeling of trivia.
Easy to knock these things I know and I don’t want to do that as I think there are valid and exciting use cases for distributed ledger technology. I use the term DLT rather than blockchain as there are a number of implementations of DLT and blockchain is one, but maybe not the best for the financial services industry.
Anyway, back to distraction or compelling tool? I think the answer is determined by what application are you going to put blockchain to? If the use case is Ruschlikon style A&S then I have to say that I think that blockchain is a distraction. Why? Because the issue with Ruschlikon right now is volume of transactions. The volume is constrained by cedants and brokers being ACORD compliant. Blockchain will not solve that fundamental constraint. DLT needs a standard. If we adopt ACORD or any other standard we are right back to the fundamental problem that senders can’t send in the required format (and in the case of cedants, have no vested interest in changing their systems to comply with the receiver’s requirements). So, we are simply replacing one technology that the senders don’t comply to with another – it doesn’t move us forward. Maybe an alternative approach to generating more Ruschlikon traffic is to invest in assisting the senders to be able to comply with the Ruschlikon Best Practice and to be able to generate EBOT. Maybe if the B3I consortium were to invest in enabling more of the traditional peer-to-peer Ruschlikon trading this would be a better investment?
This is happening. In one case where reinsurers and cedants are on the same platform, reinsurers are investing in the development of both the ability to receive (which they need) but also in the ability of the cedants to send and to process the L4s. This is a great, pragmatic way forward. The reinsurer realises the benefits of Ruschlikon, and the fact that the cedants see no benefit (unless they of course want to participate as receivers) is mitigated by the reinsurer making the investment. A great example of realising the Ruschlikon aim of more members and more traffic.