Smart technologies are radically improving the way businesses operate and Blockchain is one such example that is creating efficiencies, particularly for the finance sector. Maarten Ectors, Chief Innovation Officer at Legal & General, tells us how its Blockchain system – created by DataArt and hosted by Amazon – has enhanced its operations by enabling secure processes and transactions without the need for a third-party.
Legal & General, one of the UK’s leading financial services groups and a major global investor, has announced the launch of ‘estua-re’, the first pension risk transfer execution platform driven by Blockchain technology.
‘estua-re’ is a transformative pillar of Legal & General’s global Pension Risk Transfer (PRT) reinsurance strategy as the group aims to achieve its strategy of global leadership in annuities. It is a single ecosystem capable of driving every stage of the PRT reinsurance value chain including pricing, claims handling, financial reporting and collateral, utilising data dynamically stored on the Blockchain. It will replace multiple processes and systems traditionally used to support each function, with the added security of Blockchain technology.
‘estua-re’ enables the group to provide excellent service to customers in multiple markets, efficiently and at lower long-term costs, redefining the way long-term life reinsurance business is sold and managed, with these benefits flowing to the individual pensioners whose long-term financial security is guaranteed via reinsurance. Legal & General Reinsurance (Legal & General Re) clients will be gradually moved to support provided on this platform.
The Legal & General Reinsurance team developed ‘estua-re’ using Amazon Web Services (AWS), chosen due to the tech giant’s innovative products and services for Blockchain technology.
Amazon Web Services provides Amazon Managed Blockchain, which allowed Legal & General to quickly set up and easily manage its Hyperledger Fabric Blockchain network. With Amazon Managed Blockchain, multiple parties can transact with each other without needing an intermediary. All members maintain a copy of the ledger database, providing greater transparency. Also, manual reconciliation can be replaced with smart contracts, making the process much more efficient.
Thomas Olunloyo, CEO of Legal & General Reinsurance, said: “‘estua-re’ is the result of market-leading innovation led by the L&G Re team and an exciting milestone in the deployment of Blockchain in the long-term reinsurance space.
“Using AWS, we have been able to create a solution that addresses not only the greater speeds at which risks are transacted but also drives transparency and security in an increasingly interconnected market. We believe that Blockchain is uniquely suited to the long-term nature of annuities business as it allows data and transactions to be signed, recorded and maintained in a permanent and secure nature over the lifetime of these contracts, which can span over 50 years.”
Rahul Pathak, General Manager, Amazon Managed Blockchain at AWS, said: “It’s exciting to see how customers like Legal & General Reinsurance are using Amazon Managed Blockchain to create innovative products that allow multiple parties to work together in a trusted way, enabling them to simplify and speed up their systems and processes.
“With Amazon Managed Blockchain, Legal & General Reinsurance can focus on building new business applications that enrich the experience for its customers and transform its business instead of dealing with the challenges of keeping a Blockchain network up and running, all while taking advantage of the security and scalability the service offers.”
Intelligent CIO Europe caught up with Maarten Ectors, Chief Innovation Officer at Legal & General, who talks us through the solution implementation and how it has improved operations for the insurance company.
Can you give us an overview of the company and its core objectives?
Legal & General is an FTSE30 insurer and investment manager. It is a leading provider of life insurance, pensions and is the largest institutional investor in the UK, with one trillion pounds under management.
As Chief Innovation Officer of L&G, I run the Future Ventures team, a roving team that serves L&G businesses that have run out of ways to solve a problem – they’ve tried all the obvious and not so obvious solutions and now they’re stuck. They have, what I like to call, a ‘Harry Potter problem’ – this is an unsolved critical business problem for which you need an innovator’s wand.
Our goal as a team is to solve these kinds of problems. Our core objective is to turn revenue-draining technology and processes into revenue-generating technology solutions. For example, our Blockchain project, ‘estua-re’, for which we partnered with the technology consultancy company, DataArt, to build. DataArt came up with an idea that enabled a process to be completed in a matter of minutes which previously took an entire month.
What was the reason behind selecting Amazon Web Services?
In technology you can make two types of decisions – ones that could get you fired and ones that could get you promoted. Smart people, and in our case a smart team, outsource the decisions that have the potential to get you fired and carry out the work that can get you promoted. We don’t waste time on the non-core tasks such as cloud hosting that can be carried out more efficiently elsewhere. Amazon has the economies of scale.
Selecting Amazon was an obvious decision as the company is a market leader and can handle the bulk. Outsourcing to Amazon allows us to continue solving problems and doing things that are core to the team. My non-financial services background also meant that I already had a strong relationship with Amazon and was confident that it could deliver.
How has the solution allowed you to manage bulk risk transfers?
Previously, every month, many tens of thousands of policies had to be processed by people, determining monies paid in, monies paid out and who was transferring what to who. Each had different parameters and terms. Then, at the end of the month, the process would start again. If an error was made, this caused mistrust because inevitably, the error is made in favour of the provider. It was also extremely labour-intensive at both the client end and at the end of the reinsurer.
Using Blockchain technology, DataArt built a system whereby all the initial calculations and terms could be set at the beginning and subsequently, all calculations made would be carried out automatically while retaining transparency in the Blockchain. This is transformative to the L&G reinsurance business. The cost saving of labour at the client end means that L&G became an extremely attractive option and instead of being a cost drain like the old system was, it became a revenue-generating technology.
What challenges have you faced in terms of managing regulation, reliability and cost?
The solution is compliant with all regulation and vastly improves transparency. Costs have been hugely reduced for both L&G and its clients.
How has the solution enabled the company to scale its operations?
The speed of transaction that the solution has enabled and its non-reliance on routine tasks carried out by people means that L&G Reinsurance can scale up at speed.
Why do you trust that the solution is secure?
I take the approach that all software has bugs. You are aware that bugs will be brought in when you work with outside suppliers. Either this will come from them, they’ve used a component from others, or they did something wrong. Despite whether you keep things 100% in-house, this will happen. The question is how you solve this reality and the answer is by completing the right testing. Automatic testing must be carried out not in the mindset that maybe there’s a bug, but rather that there is a bug which must be found. We test continuously and take a Dev(Sec)Ops approach.
Why has this approach reduced complexity compared to what you were doing before?
The previous process for bulk pension risk transfer involved many thousands of policies. Both sides had their own spreadsheets, each with their own complex calculations with people checking the transactions. The problem wasn’t just concerning the person-hours involved, but the inevitability of human error. By moving all the contracts into a Blockchain solution, according to mutually agreed calculations, the process was shifted from months to minutes. Any change in policies can be viewed by all, so the whole thing becomes entirely transparent and secure over the lifetime of policies, which can be over many years. This is the ‘estua-re’ Blockchain solution which DataArt developed for us and it’s a global first.