European insurance giant Allianz explores blockchain smart contracts for catastrophe bonds

European insurance giant Allianz has announced that it has successfully used blockchain-based smart contracts to process catastrophe swaps and catastrophe bonds transactions, and also said that blockchain technology can expand the sales market for such financial instruments.

Catastrophe swaps and catastrophe bonds are high-yield debt instruments, usually insurance-related, designed to meet the financial needs of natural disasters such as hurricanes or earthquakes. They have special provisions that if the issuer suffers losses due to a given natural disaster, its principal and interest payments can be delayed or even waived entirely.

However, the settlement process for such bonds usually takes weeks or even months. Allianz said smart contract technology could reduce the settlement time to just a few hours.

This test project was conducted by Allianz in cooperation with investment institution Nephila Capital. The test results showed that blockchain smart contract technology can indeed simplify the transaction process and improve the efficiency of funds settlement.

Richard Boyd, Chief Underwriting Officer at Allianz, said:

Blockchain technology is conducive to improving the reliability and controllability of catastrophe swap and catastrophe bond transactions, and can also shorten settlement time. Because blockchain technology reduces the manual operation process, replaces the third party to verify the transaction, and can automatically confirm the effectiveness of the transaction.

The entire process of insurance transactions is manually operated. Replacing part of the process with blockchain technology can avoid losses caused by human errors.

In recent months, more and more large insurance companies have begun exploring blockchain technology.

Just this week, professional services giant PwC announced it was sponsoring a research project to explore the potential use of blockchain technology in the wholesale insurance industry through proof of concept. Life insurance and financial services giant John Hancock has teamed up with ConsenSys and BlockApps, two startups working on the Ethereum blockchain, to begin multiple blockchain proof of concept experiments.