Argo boss Mark Watson has said insurers could slash their expense ratios by developing a blockchain platform - however he warned that market players would have to collaborate to regulate it.
And, unlike many new innovations in the marketplace, Watson said there was no first-mover advantage to the distributed ledger technology, which could make it hard to get an initiative off the ground.
“As we weigh the merits and costs of blockchain in our industry, I think it’s useful to understand blockchain - first and foremost - as a means to distribute trust,” Watson said. “At its fundamental level, that’s truly what it is,” the executive reiterated speaking at re-Insurance.com’s Pre-Monte Carlo Briefing.
“Any type of exchange of value between two parties - whether a payment or a contract - must have both parties trusting that the other party will deliver.”
And Watson said there was significant cost involved ensuring that both parties stick to their side of a bargain.
“That kind of trust around transactions has been expensive to secure, typically through legal mechanisms that require significant third-party involvement,” he said.
“Someone has to verify that what one party promises is delivered before the other party delivers their part of the promise in return,” the executive explained.
However, he noted a large part of that function could be cut out by transacting business on the distributed ledger technology.
“Blockchain could relieve the need for an expense of that verification because all of the elements of the chain are inherently verified, validated and true.”
And that could lead to sizable savings, he said. “If we were all able to trust data without the rigour of independent verification, the huge cost of doing so would be taken right out of our expense ratios.”
He said the change could happen more quickly than many expect.
“It’s not outlandish to think that within a decade our industry could be converting to a distributed ledger system for a considerable proportion of our activity.”
However, the executive noted that the technology would require regulating to enforce contract certainty and to answer certain questions such as who is accountable for the data on the platform.
“Ironically, in a technological system touted for its lack of regulation, none of us will move ahead until perhaps we can create some regulation together,” the executive said.
“Regulatory bodies, while not perfect, are best when they serve to give confidence to markets,” he said noting that a lack of regulation in the cryptocurrency space has left it “ripe for abuse”.
“Blockchain, I think, will work best in our industry if we can find some standard that everyone agrees to,” he said.
But the executive noted that meant there was no first-mover advantage to adopting the new technology.
“Unlike many disruptive technologies, blockchain will not reward only those - or even mostly those - that are first out of the gate,” he said.
“For some of us, staying alert and informed is probably wiser,” he pondered, adding: “Although I do think jumping in and getting going makes a lot of sense as well.”