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Parametric policies: here is the innovative blockchain testing

A trial project to create blockchain-based smart policies to cover the main risks for travellers is under way in Italy. The policies, in this trial phase, will be available for underwriting, starting in July, by a controlled target of partner companies’ customers

18 Jul 2019

In Italy, a new trial of blockchain technology applied to the insurance sector has been launched, in particular to parametric insurance models. The project is sponsored by Aon Reinsurance Solutions (Italy) in partnership with CeTIFUniversità Cattolica and Reply, involving a group of banks (Banca Mediolanum, Banca Popolare di Sondrio and UBI Banca) and insurance companies (Mediolanum Assicurazioni, Cargeas Assicurazioni, Nobis Filo Diretto and Reale Mutua). 

This is the first collective testing of blockchain-based insurance products by Italian companies in the domestic market and is developed within the Insurance Blockchain Sandbox, a controlled environment, allowing to test blockchain-based insurance products and services safely and under the supervision of a Scientific Committee consisting of IVASS, Institute for Insurance Supervision, CeTIFUniversità Cattolica, Reply and the promoters of each use case. 

Prof. Federico Rajola, CeTIF Director: “We think that our initiative can give a boost to innovation processes in our country. Thanks to the original, proactive and multidisciplinary contribution of all the partners in this initiative, we want to make innovation through a mix of applied research and effective solutions. Actually, the project is part of the Insurance Blockchain Sandbox, a special environment dedicated to the learning and testing of blockchain solutions for the development of competitiveness, innovation and transparency of the Italian insurance market. The cases developed in the Sandbox can be used to identify the potential of blockchain and extend the direct and indirect benefits of digitalization to the entire sector”. 

The Insurance Blockchain Sandbox has already been used for another successful case study in 2018. The project, promoted by ANIA, has led to the creation of a digital platform dedicated to Alternative Dispute Resolution (ADR), a negotiation service for the resolution of disputes based on blind auctions between policyholders and insurance companies in the motor insurance industry. 

Things to do with testing 

The project envisages the creation of three different categories of smart policies linked to the travelling sector, covering the risk of bad weather, flight delays and luggage de-routing. Policies will be issued by companies and, in this trial phase, will be available for underwriting from July by a controlled target of customers identified by banks and distributors. 

The solution is based on blockchain technology and smart contracts optimising the process of issuing and managing policies and making the settlement of claims fast and reliable for policyholders. In addition, to verify the occurrence of the accident related to bad weather and delay of the flight, third-party sources certified and public (the so-called “oracles”) will be used to open the settlement file and automatically refund the occurrence of specific events. Thus, the consumer will no longer have to deal with all the red tape for reporting the claim, acknowledging the amount of damage and the value will be automatically paid. 

This is therefore the application of the parametric insurance model, policies where the payout is calculated by making reference to a predetermined index (a parameter). When it occurs, the payout is applied without verifying and determining the damage actually suffered. A trend-setting model among the most innovative companies, especially in terms of policies to cover risks associated with weather events and natural disasters. 

Roberto Tognoni, Reply Executive Partner: “The spread of parametric products, often with instant subscription, is one of the most popular trends in the insurance sector.  The use of smart contract on blockchain technology guarantees the insured party a clear and potentially automatic management of the indemnity, without the need for him/her to be involved in the opening of the claim. The use case covered by the Sandbox is part of this framework, with consumer- and business-oriented testing using highly innovative products and processes. Thanks to the proper setting up of a permissioned blockchain, we managed, on the one hand, to ensure that the product rules were guaranteed towards the insured party and, on the other hand, to enable cooperation schemes within complex distribution chains while keeping business data confidential. 

According to Gianluca Venturini Guerrini, Italy and EMEA Facultative CEO of Aon Reinsurance Solutions: “The use of blockchain technology for the distribution of insurance products is the real challenge for the future of intermediaries, a challenge that can also be extended to the reinsurance of risks. This technology will ensure optimisation of management costs, transparency of settlement processes and reduction of product “time to market”, with the additional support of international reinsurance markets. The latter are not currently part of our use case, but will definitely have a role in the spread of insurance products based on smart contracts. 

   

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