The Institutes recently tapped Christopher McDaniel as executive director of its fledgling RiskBlock Alliance, an industry consortium focused on making blockchain technology viable and practical for insurance providers. McDaniel had been head of Deloitte Consulting’s insurance blockchain efforts, and before that held senior technology positions at several insurance and financial firms. Digital Insurance sat down with McDaniel to talk about blockchain’s future in insurance.
DI: How did you get interested in blockchain technology?
McDaniel: I was doing a lot of work in financial services for Deloitte and became very interested in blockchain, started reading up on it. And it was like a light bulb going off--wow, this can really be game changing for the insurance industry.
DI: When the light bulb went off, what was it that you saw?
McDaniel: The insurance industry is very, very transactional. Everything takes a transaction to get anything done. Sometimes they’re electronic, sometimes they’re paper—more often paper than not—and sometimes there are intermediaries in there. It’s a very, very inefficient process.
Blockchain basically eliminates the need for transactions. So instead of everybody having to extend things from point A to point B—and sometimes points A, B, C and D—before they get to where they’re going, everybody can access everything at once, in real time. So you take all those inefficiencies out of the process and make it a real-time play. That’s the light bulb that went off for me.
DI: Can you characterize blockchain’s role in the insurance industry right now?
McDaniel: Up till now it’s been a lot of proof-of-concept or standalone—one application, one blockchain. The RiskBlock Alliance is focused on building a real-world blockchain framework that’s reasonable, extensible, and can have multiple applications, real applications, not prototypes of proof-of-concepts, built on top of it. And the more applications that are built on top of it, the stronger the blockchain framework gets. There’s nobody in the insurance space that’s doing that yet. And frankly, not a lot of people are doing it, even outside the insurance space.
DI: How many members is the RiskBlock Alliance looking for?
McDaniel: We opened our membership doors on October 1st and we already have six very large firms as members, and another dozen that are working through the various legal stuff they have to do on their side to become members. We think we’ll easily have 20 members, minimum, by the end of this year, and grow membership dramatically next year. Right now we’re focused on property-and-casualty, but we also have a partnership in place with LIMRA and that gets us into the life annuity space. And there are a number of other spaces that we’re going to expand into next year. So conceivably we could have 60-plus members by the end of next year.
We are a 501(C)(6), so that means we’re not-for-profit but member-owned. Members pay a fee, and there are transaction fees associated with the transactions that happen on the various applications that are built. But it’s not a revenue-generation situation, it’s a cost-coverage situation. In the fourth quarter of every year, we [will] estimate the cost of everything that we want to build in the following year. Then our advisory board, which is staffed by members, says the membership fee is going to be X and the transaction fees are going to be Y for next year, to cover costs. It’s break-even.
We have about a half-dozen folks on the board right now. Our plan is to have about 20 firms on the board, where they serve a term and then somebody else comes in in their place, so it’s continually cycling.
DI: What does RiskBlock offer that’s different from other blockchain efforts?
McDaniel: Basically, there are two components to RiskBlock. The first is the RiskBlock framework, and it’s really what differentiates us in the blockchain space.
One thing that we’re doing with our blockchain framework—and this is something that’s been done in IT forever and it just isn’t being done in blockchain yet—is the concept of build-once-use-many. So if we need a policy blockchain for a particular application that’s in production, and then we build a second application a month later that also needs access to policy information, we won’t [need to] create a second policy blockchain, [we can] use the one [we] already have. Over time it makes the blockchain framework stronger and stronger with more data added to it, and it gets re-used by multiple applications that are running on top of it.
Another key tenet is that we are blockchain agnostic. There are a lot of flavors of blockchain out there, [such as] Corda, Etheruem, HyperLedger, etc., and anybody who says they know which platform, which flavor, is going to bubble to the top 24 months from now is fooling themselves—it’s a horse race at this point. So we built our framework to be interoperable with multiple different [blockchain] flavors, and allow those different flavors to talk to each other as well.
Another factor that differentiates our framework is our policy we call, “Use It and Lose It.” When you talk to an insurance firm and say, ‘We’re going to have all of your data out on the blockchain, and all your competitors are going to have a copy of it, but don’t worry, it will be secure,’ you can imagine how they react to that—not very well. So our “Use It and Lose It” philosophy is intended to make our members comfortable with that.
It works like this: If we have an application and it needs information, it needs policy information, our blockchain has a pointer that points into the insurance firm’s back office system and gets that policy information. The policy information is used for whatever it’s needed for, for that particular application, but, once that policy information is used, poof, we blow it away. So we don’t store your insurance firm’s information on the blockchain, we just store pointers into your back office system, to where that information is, so that it can be pulled up when needed.
Another significant element is that we’re building the framework in such a way that if our insurance firm members want turnkey [applications], if they want us to build applications for them from scratch, we can. We’re putting together a software factory where we’ll be able to generate those applications. But if they want to create their own applications to plug in, we’re providing them with the tools and the standards and everything else where they can build their own to plug into the framework. It’s an open framework, so that members can build their own [applications] to plug in, or partner with others, or we can build them from scratch for them.
DI: What does 2018 hold for the RiskBlock Alliance?
MCDANIEL: We’re going to be continuously improving the current framework, framework 1.0, adding new capabilities to it. We expect to have it pretty much solidified by the end of the first quarter.
Also, through the software factory concept, we’re looking to build a very aggressive number, aggressive set, of applications on top of that RiskBlock framework. It’s possible we might have 25-plus applications built on top of this by the end of next year. They’re going to be built simultaneously, not sequentially. They’ll be across property and casualty, life and annuity, maybe even re-insurance, which is another area that we’re going to be expanding into next year. So this software factory is very key for us because it allows us to very rapidly, and in parallel, create applications on top of the RiskBlock framework.
DI: How many people do you have working in the software factory?
McDaniel: We use third-party solution providers. We’re using Deloitte right now, and they’ve got 20-plus people involved in the build process. We’ll be expanding that over the next four to six weeks to half a dozen different firms, because to do the kind of volume that we want to do next year we’ve got to have multiple firms involved.
For instance, one of the firms that we’re talking to, and we did some work with earlier in the year, is ConsenSys, a boutique firm that’s focused on building blockchain applications. And there are other big boys, like Deloitte, that we’ll be talking with, too.
DI: Do you spend a lot of time proselytizing blockchain?
McDaniel: There’s a lot of hype out there. Some firms are actively exploring it, creating prototypes. Most understand what it is, and they don’t look at you like you’re from Mars when you start talking about blockchain, but they don’t necessarily get that value equation. So that’s one of the key things I focus on. If they need blockchain 101, I’ll share that with them. But I like to spend as much time as possible talking about the actual, real-world use cases where they can realize efficiency and productivity.
DI: Why the Institutes? What is it that the organization brings to blockchain that will help push it forward?
McDaniel: The Institutes is a trusted source. A lot of the blockchain consortiums, outside of insurance, are for-profit—they’re trying to turn the big buck. The Institutes is not-for profit, and they’ve been a trusted advisor to the insurance industry for 100+ years now. It really makes a difference.
For example, one of our member firms had built a prototype of a [blockchain] application before they were a member. They told us they went around and talked to half a dozen of their competitors, saying, “Join in with us on this, we can work on this together.” And they got a lot of cold shoulders.
We said, bring it to us and let us be Switzerland. And now we’ve got probably a dozen firms that are participating in the production build out of that [application]. So that’s a value that the Institutes brings, that trusted partner that’s not trying to make a dime on everything, they’re just trying to make the industry better and everybody knows that.
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