Automating Institutional Contract Management with a Blockchain Platform
The client is one of the largest providers of retail life insurance and investment management services in the UK. The company’s specialty is the reinsurance of annuities, particularly in the pension risk transfer space, with a primary focus on the U.K., the Netherlands, Ireland, and Canada. In pension risk transfer, an insurance company guarantees the payment of pensions by issuing life-time annuities to pension beneficiaries. As a reinsurer, the client takes on part of these pension guaranties. The company aims to achieve global leadership in annuities.
The administration of reinsurance contracts is highly complex, involving labor-intensive, manual processing and review by numerous parties in accordance with complicated business rules. These parties include the insured pension funds, the insurance companies that take on the first-layer of pension risk, and the reinsurers that stand behind the insurance companies. A given pension risk transfer transaction may involve multiple insurers and reinsurers.
Pension risk transfer reinsurance contracts can last up to 50 years or more, requiring all parties to maintain separate versions of the same data sets for the entire duration. Every month, the client and its counterparties exchange data via emails and data rooms, with each party performing its own calculations on these data sets. This process is highly inefficient, and any errors are compounded over time because of the difficulty, if not impossibility, of tracing changes made years ago to identify who made them and why.
The client was looking to solve these challenges. They looked at a number of potential solutions, including off-the-shelf software platforms, but none of them could solve all aspects of the challenges faced. For instance, they considered centralised databases with APIs, which worked well for bilateral transactions but became less efficient as the number of parties increased. Eventually, Distributed Ledger Technology (DLT) was found to be the only technology capable of securely and immutably storing data and interactions across multiple parties over a 50+ year period.
The client chose DataArt as its technology implementation partner because of DataArt’s world-class DLT expertise and its ability to quickly develop a proof of concept to demonstrate value. In partnership with the client, DataArt designed, built, and deployed the pension risk transfer DLT platform, which allows the client to manage its long-term pension risk transfer contracts on the blockchain.
The table below compares the existing process with the new DLT platform.
|Existing Process||New DLT Platform|
|Administration systems are managed separately by each party||Administration systems are shared by all parties|
|Data is at risk of loss or breach because it is exchanged via email and data rooms||Data is highly secure because it is immutably recorded directly in the distributed ledger|
|Auditing historical data is very difficult, if not impossible, depending on the time-period||Data is easily auditable over length of time|
|Interacting with multiple systems requires complex processing and is labor-intensive||Flexible connectivity via open APIs allows seamless systems integration|
And here some of the highlights:
Streamlined Contract Management Through Blockchain Smart Contracts
The DLT platform streamlines the contract management process by creating a blockchain network of all contracting parties and moving all contracts onto the network. The contract terms are embodied in code, enabling rapid contract execution and automatic reconciliation of transactions.
“Single Version of the Truth” for Multiple Parties, Immutable and Traceable Over Time
The new DLT platform enables private and secure peer-to-peer communication and data exchange with all parties maintaining a copy of the ledger. Any change in contracts can be viewed by all parties and traced over any time period. Network participants agree on all data, signing digitally and cryptographically, which creates a “single version of the truth” built on perpetual consensus without the need for a centralized authority. The history of a transaction becomes secure, immutable, and entirely transparent over the life of the contract. Of course, the platform complies with all applicable regulations.
A Highly Customizable Platform
The platform allows new contracts to be created by customizing pre-coded templates in accordance with terms and business rules specific to a particular contract, reducing reliance on the technology team.
The Impact on Client’s Business
Transformation of Every Stage in the Value Chain
The new DRT platform can drive every stage of the PRT reinsurance value chain including pricing, claims handling, financial reporting, and collateral, within a single ecosystem, utilising data dynamically stored on the Blockchain.
Massive Reduction of Operating Costs and Risks
By replacing the multiple systems traditionally involved in reinsurance processing and administration, the DLT platform eliminates duplication of work and the need to continuously synchronize data, resulting in huge cost reductions as well as reduced risk.
As Reinsurance CEO Olunloyo has explained, “removing the segmentation and allowing a single version of the truth between the counterparties and ensuring that transparency exists allows The client to run its business much more efficiently.”
Increased Processing Speed
The new DLT platform allows the client and its counterparties to transact much more quickly than ever before while also cutting costs. It has proven to cut monthly reconciliation from weeks to hours.
Because the client’s counterparties also reap the efficiency gains, cost savings, and other benefits of the new DLT platform, The client has greatly enhanced its competitive position, leading to more business in more territories. The technology has become a revenue-generator for the client.
By vastly simplifying contract execution and administration, the new DLT platform allows the client to take on more business without the added transaction costs associated with manual processes and outdated technology. Scalability, in turn, leads to more cost savings.
Customer Service Excellence
The platform enables the client to provide excellent service to customers, more efficiently and at lower long-term costs than before, with these benefits flowing to the individual pensioners. Feedback from customers that have piloted the platform has been positive, especially regarding the simplicity and clarity of smart contracts and the ability to audit data over any time period.
Plans for the Future
Offering unprecedented transparency and security in a highly interconnected market, the platform is intended to be open to many of the client’s counterparties and is already live with one insurance company.
DataArt initially created a successful POC on the Corda blockchain platform.
Once the POC was approved by the client, DataArt built the first smart contract between the client and an insurance company on Hyperledger Fabric. DataArt manually deployed AWS infrastructure to support the Hyperledger Fabric blockchain network, including installing software, creating and managing certificates for access control, and configuring networking components.
For all subsequent smart contracts, the team adopted Amazon Managed Blockchain (ABM), which runs in the cloud as a managed service. Using AMB allowed the team to set up, manage, and invite partners to the new blockchain network faster and with lower cost and complexity than deploying the foundational infrastructure manually, thereby enhancing the scalability of the platform.
The project was carried out by eight software engineers, a business analyst, and a team of quality assurance engineers.