Symbiont Showcases Blockchain Catastrophe Swaps to Insurance Execs
The next time a tornado obliterates land and property in California or Ohio, Symbiont’s newly unveiled catastrophe swaps blockchain platform could help speed up how quickly the victims get paid out.
Mississippi, on the other hand, could be out of luck.
A prominent New York-based blockchain startup, Symbiont demonstrated a system of smart contracts integrated with its secretive Assembly blockchain earlier this month, showcasing how it can facilitate the automatic dispersal of funds to a group of insurers, reinsurers, investors and media.
Though Symbiont has yet to reveal the innerworkings of Assembly's technology, Ron Papanek, the company's head of product, described it to CoinDesk as "an extremely mature" platform capable of conducting 80,000 transactions per second.
Though this particular demo was for an insurance product, Papanek said that Assembly could run a wide range of business-specific use cases, with little more than a new smart contract, or self-executing code.
Papanek said in interview:
"This particular application was built very rapidly, to demonstrate the capabilities of the system, and depending on market demand, could be expanded to cover the necessary edge cases quickly as well."
Breaking down swaps
To begin, an insurance company would propose a swap by inputting details into the insurance smart contract, including the covered event threshold, the fixed rate payment, the currency, the floating rate, the effective dates and the payer, which in this case would be the reinsurance agent.
Then, the smart contract is uploaded to the private blockchain. It became visible almost instantly for the reinsurance agent, whose screen could be seen side-by-side with the insurance agent’s interface.
The contract however, was not active upon upload, but rather needed to be approved by the reinsurance agent. Once approved, a PDF of the ISDA version of the contract could be downloaded with all the data being tracked via the blockchain, marked in red.
“Both parties now have complete documentation of the existence of this contract,” Papanek explained.
At this point, Papanek filled out a report on behalf of what would have been a report providing agency in a live use case. Specifically, Symbiont's head of product unleashed two imaginary “wind events” in the states of California, Ohio and Mississippi. In a real-life application, data about such events would have been provided by Verisk Analytics.
Using a feature called “Time Travel” specifically created to demonstrate the smart contract's functionality, time was rolled forward and the terms of coverage logged on the blockchain were cross-referenced with catastrophes. While $1m was paid out to California and Ohio, the terms of the coverage did not result in payment to Mississippi.
Had this been a real catastrophe, payment itself could have been conducted via a cryptocurrency, though Papanek said he thinks that’s unlikely to be done by insurance companies in the near future.
Instead, he thinks a “more common” way to transfer funds might be a token that represents a title to an account held by a custodian bank.
Blockchain insurance in the wild
The nodes of the Assembly blockchain, or "containers" as Symbiont describes them, can be hosted in the cloud or locally, and are managed by each of the participants. Keys can be managed by hardware security modules (HSMs) including the SafeNet Network HSM – formerly called Luna SA – and AWS Cloud HSM.
Each node is granted custom access to transaction data, where some parties might be privy to certain transaction data, but not others, and some parties might have access to only specific names, for example.
The Byzantine fault technology (BFT) at the heart of Assembly requires no mining to operate and doesn’t include a native cryptocurrency. The ledger can be adapted to a wide range of other industries, according to Papanek, by writing case-specific smart contracts.
Already, the New York City-based Symbiont has partnered with financial data firm Ipreo, which is co-owned by Blackstone and Goldman Sachs, to build financial service applications of the technology.
A 'who's who' of insurance
A total 81 investors and members of the insurance industry were in attendence at the demo on Tuesday.
During an informal poll at the beginning of the demo, about half the observers identified as just beginning to explore blockchain, while a few identified as experts.
Symbiont’s newly hired president and former Morgan Stanley managing director, Caitlin Long, described the group to CoinDesk as being composed of a “significant” number of participants from Europe and Asia.
"It's literally a "who's who" of the insurance industry, from all around the world -- property/casualty insurers, life insurers, reinsurers, and several investors in insurance-linked securities too."
The industry itself has looked into this particular use case in the past. In April, insurance giant John Hancock began its own internal blockchain tests. German insurance giant Allianz recently completed its own blockchain catastrophe swap tests with investment management firm Nephila.
But is it legally enforceable?
Following the demo, Papanek responded to a question from one of the observers about whether such contracts are legally enforceable.
He explained that even a more traditional written contract "is only evidence to an agreement that parties have". In this case, it would be up to the parties to determine whether a written contract takes priority over a code-based smart contract or if the smart contract might take priority.
Though Papanek left little doubt as to the direction he thinks the insurance industry will ultimately come to embrace.
"We are certainly moving towards a world where code takes priority."
Tornado image via Wikipedia
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