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Today we pay insurance on a set period, whether its weekly or monthly or annually, irrespective of the actual usage. Most of the times, good drivers pay for the consequences of bad driver behavior as insurance businesses are forced to pass the costs on to everyone.
Ryan Rugg, Global Head of Insurance at R3 Corda thinks that model is about to change, thanks to the efficiencies that can be realized from Blockchain Technology.
Blockchain can help insurance transition to Dynamic model from a static one
The existing insurance model is both static and outdated, whereby individuals and businesses are charged based on a set period instead of actual user needs. Individuals and businesses are now realizing that there are more cost-effective ways to manage services that are not in use.
This realization has led to the transition for digital technologies to become a top business priority for CIOs in 2019. Dynamic based-models that save companies time and money while providing the customer with a better experience.
Usage-based insurance enables insurers to incorporate behavior data and update it in real-time on the blockchain. The integration of telematics, IoT and GPS information opens up opportunities for pay-as-you-go policies.
Companies that resist this potential possibility will soon find themselves taken over by businesses that embrace it.
A Convergence of Technologies
While discussing how the fourth industrial revolution is paving way for collaboration between technologies to create a seamless transactional experience between businesses and users across multiple industries, Ryan said: “Blockchain has the ability to act as a common foundation that eases the convergence of other next-generation digital technologies such as machine learning, AI and telematics.”
For instance, a hospital could share certain information about its patients with the insurance company via a blockchain platform. Once a consensus is reached, settlements could happen across different technology platforms.
“We rethought the blockchain concept from top to bottom to build it specifically for business that offers privacy, scalability and interoperability,” Ryan said, “The Corda ecosystem is underpinned by Corda Network, an independent technology which enables interoperability between different applications and sets of nodes on Corda.”
Shared economy is the future state, Blockchain is laying the foundation
If the current progression of the shared economy model is any indication in the form of Airbnb, Uber and alike, we soon will find ourselves in an economy businesses operate through an app. Based on immediate needs rather than long term commitment. Loyalty will gain a whole new meaning that is based on the usage rather than tenure.
For instance, customers may get loyalty rewards based on a number of hours or days of usage, or the number of transactions, rather than how long they have been customers. And businesses will be judged on a similar aspect of cost, availability, and agility of providing effective services rather than just brand name.
While the current model of the shared economy is rapidly evolving, it lacks transparency and information sharing across multiple platforms. Blockchain can add synchronization “among multiple different groups of people touching the same information,” Ryan said.
Tokenizing identity could be a solution to tackle privacy in insurance space
Talking the importance of privacy, Ryan said “Firms are finding that the security and privacy offered by Corda’s private blockchain model are essential for insurance projects which are highly regulated and often deal with very sensitive data. One way of doing this could be through identity tokens.”
Instead of revealing the identity of the individual or businesses, one could tokenize the identity that can be verified on the blockchain without ever revealing sensitive information and share that token to transact across multiple platforms.
This will help ensure the interoperability, speed, and efficiency, without compromising data privacy or tripping any Global Data Privacy Regulations (GDPR).
Educating people about Blockchain will accelerate its adoption
Talking about what we can do to accelerate the adoption of the blockchain, Ryan said “educating the individuals and corporations about the efficiencies that blockchain technology brings is the first step toward its adoption.”
R3 is ahead of the curve to support this, having set up the Corda insurance steering committee, formed from the industry leading firms to share best practice and support the implementation of this new technology.
Ryan also set up the InsureTech challenge that attracts talent from all around the globe to bring forth innovative solution-based Corda Applications.
They have free events, workshops, templates, extensive material available for the public to get the knowledge needed to get experience in the Blockchain space.
The Blockchain is easier to implement than people think
Most businesses and individuals stay away from Blockchain technology thinking about the complexities that may arise. However, solutions offered by companies like R3 are easy to implement.
Ryan said, “People often worry that they are not going to have internal expertise or resources to support the implementation of blockchain, but they are frequently surprised at how easy it is to build a PoC on Corda.”
Ryan’s passion is very evident from the responses she gives about blockchain technology’s impact in the insurance industry and she is excited to be a leader on that path.
“I love what I do and it doesn’t feel like work when you are that passionate about it,” she said.
Why not, the fourth industrial technology revolution is taking place in front of our eyes and people like Ryan are leading the way and that is a cause enough to be excited about.
You will learn a lot from the interview with Ryan about blockchain’s impact on insurance in particular and our lives in general.CryptoTapas: Thank you so much, Ryan, for joining us today, we are excited to learn about Blockchain’s role in Health Insurance in general and R3s journey in particular.
Ryan Rugg: Looking forward.
CryptoTapas: Looking at your profile, I see that you have had a successful career with world-renowned companies. Tell us a little bit about yourself and what made you step into Blockchain space?
Ryan: I was a computer science major, starting my career out at Lehman Brothers’ Technology group. I was very fascinated with the front office; the way strategic investment managers worked and in time became a lead member of a team at JP Morgan.
I remained passionate about technology, so I took Python classes and kept myself up-to-date and then about 3 years ago I read an article in The Economist about blockchain and how it could revolutionize how financial services do business. My research led me to meet with R3 and became immediately inspired by the Corda platform. While there are other players in the blockchain space, R3 is the only the blockchain software firm that is built specifically for business.
My passions were aligned with the goals of R3 and I took a leap of faith to go back to my technology roots. It’s been 3 years and I haven’t looked back.
CryptoTapas: What about blockchain was the aha moment for you that propelled you to take the leap?
Ryan: Revisiting my days at Lehman Brothers at their Technology back office, where you have disparate parties trying to reconcile same information, because you all had your own record of truth, but if you had the shared truth – that is what I see is what you see – you wouldn’t have all these breaks and different manual processes, and quite frankly large expense ratios.
You would be able to streamline and your customer experience would be better. I related my early experience to what I read in the article and I thought that this technology would have made my life easier at Lehman Brothers.
It felt like the right opportunity to see what this technology was and figure out where I thought was the most opportunity in the infrastructure of the future state.
Having talked to several banks, they are trying to leverage blockchain with different models, like JP Morgan coin, etc., where a lot of real assets are backed by and tokenized.
That kind of infrastructure is where the opportunity is and it was the best fit for my passion.
CryptoTapas: Awesome. Have you ever bought Bitcoin for your personal collection?
Ryan: I did. It was crazy when I think about how long it took to buy and the inefficiencies at the time to be able to buy. Nonetheless, I did do it.
CryptoTapas: What do you think the Blockchain’s state right now in general and R3s evolution in the space in particular?
Ryan: I am going to talk about it from an insurance perspective since I run the insurance side of things and have the most visibility to that space. I will also talk in general about the banking space.
R3 has done over 200 proofs of concepts and in the last year, which is now going into production.
From an insurance perspective, one of our applications went live last April. It is called Insurwave. It’s a coordination of E&Ys Guardtime that build the project for Maersk, coordinating insurers, reinsurers, and broker information, all of which is on the smart contract.
What I think is fascinating about that project is when you talk to the Head of Risk at Maersk to streamline a process to gain efficiencies and lower expense ratios. What is really fascinating to me is current models have a static policy. That is, you go out to the market once a year and you say ‘how much does it cost to ensure my 1000 ships?’, the broker then goes to the insurer, the insurer goes to reinsurance and so forth.
From telematics and other satellites, they know when the ship is in pirate waters and they know when it’s in the safe waters.
A company like Maersk may say ‘I don’t want a static policy’, I want a dynamic policy. That to me is stage one of this technology, where you are able to streamline the efficiencies to lower the costs, but the future is its potential to evolve into new service products using this technology.
CryptoTapas: We agree. We all have felt the brunt of someone else’s mistakes when the insurance company decides to increase costs for everyone, and we are left to scratch our heads as to why we are penalized for someone else’s mistakes.
Ryan: Even if you think about autonomous vehicles, why would you want to pay an annual fee if you are only in the car for an hour? You should use space model. We are still in the early Proof of Concept (PoC) stages but they are already looking to the future.
We are in the fourth industrial revolution of technology where we see all these technologies converge. IoT, telematics, AI, all are converging, and it’s really fascinating.
CryptoTapas: In a future decentralized model there could be a time where you don’t even need to own a car. You just pick a car, use it for a few hours and you pay for the usage, not for a fixed term like a day or a week.
Ryan: I definitely agree, and it’s exciting to be on this journey into the future state with insurers as well as other industries.
Going back to the beginning, when R3 started, it’s not like all the bankers were dying to work together but they had a common objective of ‘how else can we lower the expense ratios?’, you have already done your headcount reductions, you have already lowered your lucrative ratios, you have already done all these cost-cutting measures.
As other industries have moved to the shared operation model, for example, if 10 years ago you were going to sleep in a strangers’ bedroom or get into a strangers’ car, it would be unheard of.
The shared economy model will be the way to lower costs and bring efficiencies.
Corda is that synchronization layer for the back-office systems where each has multiple different groups of people touching the same information, with Corda, you have to reach consensus before a policy or a transaction is recorded on the ledger, so all those reconciliation costs are reduced greatly.
CryptoTapas: What are the top 3 challenges in the insurance space that need to be addressed before Blockchain can penetrate into the mainstream?
Ryan: The biggest challenge we are seeing right now is bringing all the players like procurement, compliance, info sector teams, lawyers, etc., together.
One of the things we are focused on is helping onboard those who do not have the technical know-how or the budgets for innovative technology. We are building these templates to speed up the whole deployment process.
Making the legal side, compliance-regulatory teams, comfortable to work with this technology is part of the journey.
We started a Legal Center of Excellence about a year ago. We have about 17 different law firms that are part of that network now that participate in our projects, contribute to the legality of everything from smart contracts to different jurisdictions regulations and how it is viewed in different courts.
It is a global network and we want to ensure that each of our participants has that advice, so we are working really closely with the legal. It is interesting to see all the different perspectives on it.
A lot of lawyers are worried about disruption. Business models will change and we are not here to say who is or not disrupted, but perhaps you move from an hourly based model to a policy library where you almost charge an annuity when someone uses your smart contract as a policy.
Again, business models will change and it is strategic for lawyers to keep focused on getting involved.
CryptoTapas: Absolutely. The modern threat to traditional businesses doesn’t come from another company, it comes from someone cooking up an App idea and disrupting the whole space.
If you were to pick one big challenge you need to overcome for R3 to succeed in the insurance business, what would that be?
Ryan: A lot of it has to do with how green this industry is. That’s why we do so much outreach, education and publish thought leadership pieces. We really want to educate the industry by sharing the lessons we learn along the way to accelerate the pace of adoption.
Our focus in 2019 is moving applications into production. We have the InsurTech challenge where we are about to close round 1. We had 51 submissions of potential Corda Apps out there, and it is fascinating to see people participating from around the world where I thought people did not know what Corda was ended up showing up and wanting to build Apps.
Bringing industries along, helping them through education as well as code, templates, etc. to accelerate industry as a whole is what we at R3 are doing to accelerate the adoption pace.
CryptoTapas: Is Corda interoperable?
Ryan: Interoperability is the one thing we really focused on from the beginning. We realized that a lot of these early projects were creating strayed assets where you couldn’t actually share between two different applications. We have what is called as Corda Network, it’s a not-for-profit foundation, a separate entity from R3 with a separate board.
Interoperability is extremely important, we are working with the banks, insurers, assets managers, exchanges, and so forth on this.
CryptoTapas: Talking about insurance, let’s say you are working with a hospital network – they can be on their own blockchain but they can still interact with an insurer who uses a different blockchain?
Ryan: You can have a segregated sub-zones, which basically means your network map can be private just to, let’s say, that hospital, but if you need to be able to share your patient data to a different business network or different hospital, whatever the case is, you could potentially be able to use the identity in both the networks and share those records.
CryptoTapas: Since we are talking about healthcare and insurance aspects, do you think blockchain will be able to address privacy regulations, like GDPR, around the world?
Ryan: When I think about all the projects, Corda Apps that are going into production, in general, it’s been in the Property and Casualty Insurance (P&C) space. We have a handful of health application but due to personal identity aspects, we haven’t been able to address some of these issues.
We are working through the aspects of what information is on-ledger and what information should be stored off the ledger, could you tokenize identity and just put the token and cryptographically hash that and we have done several cases of that and we are starting to see more of that emerge.
First and foremost, we want to make it 100% compliant before we push it to production.
CryptoTapas: What experiences do you go through from working in this space which people from outside may be oblivious to?
Ryan: A lot of people when they hear about Blockchain or Distributed Ledger Technology think that it will be complex. They almost become nervous because they don’t fully understand. Corda is a Java-based language – we did that intentionally because we did not want to make something extremely difficult to understand.
People often worry that they are not going to have internal expertise, they don’t have the resources, their team is not well suited but they are quite frequently surprised that how easy it is actually to build a PoC on Corda.
B3I was originally on Fabric and what took them basically two years to build on Fabric they replicated in a month on Corda.
The notion that it is extremely difficult to hire resources that are blockchain proficient is misleading. You have a lot of resources internally that you could re-utilize and we could help train them. We have online certifications, free business training online, we have resource papers, all meant for the community to help build everyone up on this journey.
CryptoTapas: You working in a relatively new industry helping build the technology while educating the space. How do you find work-life balance in the middle of all this chaos?
Ryan: It’s very interesting to think about work-life balance. I have been accused of being a workaholic quite a few times. We are running a global business and I find myself on calls at 2 am. It doesn’t feel like a job to me. I am extremely passionate about the work I am doing and find it extremely fulfilling. From an employer stand-point, they are not demanding all of this from me, but I believe that we are going through a digital transformation and it’s important that we stay focused on that and that we help our clients and industry go through that.
I love what I do and it doesn’t feel like work when you are that passionate about it. I have an extremely supportive family, I am a mother of two and am fortunate to have such a wonderful husband who supports me with my workaholic addiction.
CryptoTapas: How do you stay away from digital noise when you are with your family?
Ryan: We have a rule that during a two-hour window every day, when I have dinner with my kids and spend time with family, we put our phones and laptops in the other room and we completely focus on the family.
Once everyone is asleep, we get back online.
CryptoTapas: What can individuals and businesses do to help this technology get adopted faster than it is right now?
Ryan: I really think that using all the free resources right now, educating your teams, insurance as a whole is worried about their aging workforce and attracting new talent. InsurTech has brought a lot of new talent. Read articles, attend workshops, we have a ton of things on R3.com, events that are free to the public. We do workshops for individual insurers showcasing what other entities are doing.
Staying on top of what this technology is and how it could impact your business, will certainly help its adoption.
Thank you for reading this article.
Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.
CryptoTapas does not endorse or guarantee the accuracy of the information and claims made.
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About the author
RK Reddy holds two Masters degrees, one in Accounting and another in Business Administration with over 15 years of experience in the financial services industry.
RK Reddy is an ardent fan of Blockchain and Cryptocurrencies. You can see the excitement about this new technology in every article on Cryptotapas.com. Sometimes this excitement leads to an overly optimistic view. Guilty as charged. RK Reddy says “what may seem like an ‘overly optimistic expectation’ today may become an everyday norm in 5-10 years; look at the history of cars or airplanes, Blockchain and Cryptocurrencies belong to a similar frame of reference.” Of course, that is just his opinion.