Blockchain offers vast potential to improve the operations of insurers in the MENA region. It can be used to develop smart contracts, automate claims and even provide digital evidence for underwriting. However, blockchain adoption in the region remains at a nascent stage. Middle East Insurance Review spoke to XA Group’s Ms Mina Sahib and Now Health’s Mr Zahir Sharif about what is needed for blockchain to be used more widely.
Blockchain technology made headlines in 2019 when five insurers in the Middle East were first to adopt an integrated platform developed by Addenda. Back then, it was an InsurTech start-up using distributed ledger technology to streamline processes between insurers. Addenda was recently acquired by the XA Group, a tech firm dealing with automotive repair solutions.
“It was the first example of blockchain adoption by the insurance industry in the region. The concept of a shared ledger to accelerate reconciliation of motor recovery claims was a new concept for insurers but eight insurance companies in the UAE implemented the platform initially in 2020,” said XA Group insurance business director Mina Sahib.
With XA Group’s acquisition of the Addenda platform in January 2022, she said that it was preparing for a major relaunch of the platform later this year. The company is rolling out a pilot of the platform and has invited all insurers in the UAE to participate. The pilot is also extended to other countries in the MENA region.
Updating current practices
She said incumbent insurers who wish to accelerate their digital transformation will need to invest in upgrading their core IT systems and remap their IT architecture to enable successful implementations of IoT, blockchain and AI tools. She said these are not hurdles but can become so if there is a lack of alignment on strategy in management.
“The only real significant hurdle I foresee is the difficulty insurers in this region have convincing their boards to invest in digitalisation. The COVID-19 pandemic has driven this conversation but only to a certain extent. To guarantee staying power, board members must understand that they will lag behind if they don’t start their transformation soon,” she said.
Impact on motor insurers
According to Ms Sahib, most insurers today rely on paper deliveries or email to communicate with other insurers on motor recoveries.
“The volume of exchanges, approvals required and the documentation that can go back and forth on a claim, becomes incredibly difficult to manage through these forms of communication. Critical information can get lost and this is often why reconciliation becomes so difficult for motor recovery teams as these exchanges can span for months at a time,” she said.
Ms Sahib said the Addenda platform accelerates the reconciliation process by reducing 30% in full time equivalent employees and displays full transparency of the recovery process and of a company’s receivables and payables.
She also brought up how the company is looking to improve the payment workflow after reconciliation of the recovery claims and how to integrate with central police databases for reports so that accident intimation can be triggered in real-time.
Ms Sahib highlighted the need for InsurTechs to take a lead role in the adoption of blockchain and provide guidance to insurers.
“We can do this because we have a team that understands, appreciates and recognises the importance of these technologies. For insurers who are still unable to understand their own legacy core systems, blockchain may seem like a daunting technology,” she said.
There has been a global spike in digital asset investments in the last five to 10 years and she said recent regulations by the UAE government on cryptocurrency and the official opening of Binance in the country indicate that blockchain technology is being valued by consumers for its benefits.
“So why won’t insurers recognise this trend in the consumer market? The insurance industry is traditional and by nature risk-averse. It may take some time but for those of us servicing the insurance industry with blockchain solutions. We must take the lead even when we experience a little resistance,” she said.
While the Addenda platform had already made progress with motor insurance companies in the region, there were other insurers adopting it as well. In 2017, AIG, Standard Chartered and IBM announced the success of a pilot to develop the world’s first multinational insurance policy using blockchain technology. A smart contract converts an international, controlled master policy written in the UK into three local policies in the US, Singapore and Kenya.
Using blockchain technology, the smart contract provides a live and shared view of policy data and documentation. This also allows visibility into coverage and premium payment at the local and master levels as well as automated notifications to network participants following payment events.
During the pilot phase, third parties such as brokers, auditors and other stakeholders were also given access to a customised view of policy and payment data and documentation. The three companies chose to execute this initiative in multinational risk transfer to understand blockchain’s potential better to reduce friction and increase trust in other areas of insurance.
Understanding blockchain technology
Now Health CEO Zahir Sharif said that the most significant hurdle to the adoption of blockchain is likely to be lack of understanding of the potential benefits that it can bring to the industry.
“For example, there are relevant questions and concerns to be addressed around the use of blockchain, including scalability, the time and cost resources to verify transactions and security. However, these are all things that we can address with how we use blockchain either across processes or alongside others,” said Mr Sharif.
He said that people and businesses may fall into the trap of believing blockchain adoption has to be ‘all or nothing’ when its real potential is likely to be in choosing to adopt it in areas where it can make a significant difference both operationally and to customers. M