Industries contemplating using the nascent blockchain technology in hopes of disrupting their individual markets should take into consideration a number of factors before diving in, the April annual meeting of CLIEDIS (Canadian Life Insurance EDI Standards) was told.
Cole Cioran, senior director of research, application development and portfolio management at Info-Tech Research Group, told CLIEDIS members that while people are eager to see the potential of blockchain technology, it’s still relatively new.
“Everybody is excited about blockchain, but they’re asking: ‘what’s in it for me?’” said Cioran. But once they get their heads around the technology, many believe it’s a legitimate way to do business and are looking at how they can incorporate it into their companies, he said.
Cioran said that now is the time to invest in experiments with blockchain technology. But, he added, like all experiments, people need to be careful. “Put your money behind them, but don’t bet the farm because ultimately, the early adopters of the platform are going to dominate,” he said. “There is no dominant platform for blockchain in the insurance industry yet. But if you don’t get to work now you could find yourself in trouble.”
He said bitcoin has become the “enfant terrible” of disruptors, soaring to major heights, but with the potential of becoming “a cautionary tale that points to the need to be thoughtful when you work with disruptor companies.”
He pointed as an example to the fact that Craig Wright, the Australian man who claimed to have invented bitcoin, is being sued for allegedly stealing $5 billion in bitcoin from a former business partner.
And in an era when regulatory compliance is a serious concern everywhere, Cioran noted that the U.S. Securities and Exchange Commission recently issued a strongly worded warning about the risks of dealing with unregulated cryptocurrency exchanges.
“Who here doesn’t worry about regulatory compliance? Increasingly, people are worried that anything with a financial transaction at all is going to get regulated and that’s increasingly becoming reality.”
When pondering new ways to use blockchain technology, standards need to be developed for apps, including methods to ensure trust, transparency, peer-to-peer review and that the app is robust, he said.
Many early blockchain technology apps were poor performers at a time when people were already accustomed to waiting just a few seconds for a program to load, he said.
“So sometimes disruption comes at a cost particularly with highly regulated industries,” said Cioran. “The key thing is: you can’t afford to have your name attached to something that goes down in flames.”
Agile regulatory compliance
While compliance is a big issue, he said some companies have formed “agile regulatory compliance practices” that can adapt to changes in the regulatory regimes much more quickly. They are also bringing down the traditional norms of having only one person to go to in the company to talk about regulation.
“Compliance is critical. [But that] doesn’t mean you have to keep doing regulatory compliance for the organization the same way at all.”
Cioran also said that funding matters and companies need to have teams always searching for ways to make their technology work.
Part of that will be funding research and development into blockchain and other disruptive technologies, funding that may require partners.
Companies need to become more disciplined in what they want, he said, and ensure they have the right people and good data to get their firms moving.
APEXA signing on MGAs
One particular set of standards – APEXA – is moving forward after going live last summer.
Dylan Friedmann, vice president, client and partner experience with APEXA, told CLIEDIS members that it is busy signing up more insurance companies and managing general agencies (MGAs) to the cloud-based system, aimed at standardizing advisor contracts and compliance platforms.
Later this year, 12 major carriers are set to come online with APEXA, including RBC Insurance, Equitable Life, SSQ, ivari and Assumption Life, Friedmann said.
The first onto the system were those that helped create it: life insurers Canada Life, Empire Life, Industrial Alliance, Manulife and Sun Life Financial. Also involved were MGAs HUB Financial, Financial Horizons, IDC Worldsource and PPI Solutions.
While the nine members originally had hoped to go live in early 2016, a number of snags delayed the official launch until last August, after which it began signing up advisors.
Friedmann said APEXA is viewed by some as a disruptor, but she said the system is a way to simplify information for all involved, including insurers, MGAs and advisors.
The purpose of APEXA is to ensure an industry solution with everyone on the platform, a goal she said APEXA is moving towards.
One of the big challenges with an industry solution is timing. “So for the MGAs, it’s really important that the carriers are on, and for the carriers, it’s really important that the MGAs are on,” said Friedman.
Michael Williams, president of BridgeForce Financial and president of the Canadian Association of Independent Life Brokerage Agencies, said regulators are keeping an eye on APEXA, as well as all other regulatory and compliance issues.
Williams said regulators have made it clear that they want fair treatment to be given to Canadian consumers and that every advisor’s compliance practice is efficient.
Technology is required to do that, and APEXA, said Williams, is helping to do that.
“If we don’t step up, the regulators will tell us what to do.”