In July, it was announced that blockchain-based initiative B3i would be shutting down, despite already offering working and promising solutions. The company failed to raise funding, which sends the wrong message to the entire emerging sector, but especially to traditional insurers. So, let’s go over the basics of the initiative, why it failed, and what that means for the builders of today’s blockchain-based insurance industry.
Founded in 2016, B3i was originally established to create more efficient and digital end-to-end solutions by developing the necessary infrastructure and platforms. For example, B3i Re understood that today’s reinsurance practice suffers from manual processing and other inefficiencies that slow down the management of contractual agreements, not to mention the integrity of data. That’s why B3i Re set out to transform the industry by enabling the execution of digital reinsurance transactions and eliminating the need for manual processes.
These trusted and automated solutions for improving efficiencies were of course based on smart contracts and distributed ledger technology. Contracts and agreements concluded with B3i’s solutions could therefore be automated to a large extent, were legally binding, and met the highest data quality standards. All this while reducing costs and the need for manual reconciliations.
Why then, you ask, was this initiative not continued? Why did the investors decide to suspend any further financing and thus the future of the company? For me personally, this decision is a big surprise. It is surprising because B3i was founded by industry leaders and reinsurance giants who not only had a significant financial stake in the initiative as they had already invested millions of dollars at that point. The solutions developed had also already been implemented and proven in the field. As recently as April 2022, B3i’s technology was used by Allianz and Swiss Re to place the first XoL reinsurance contract on DLT.
So again, why is the only blockchain-based initiative by traditional reinsurance companies being killed when so much money and work has already been invested?
Stopped at a critical time for the wrong reasons…
Well, I don’t have the answer to this question, but the project seems to have been stopped at a critical time for the wrong reasons. For example, a statement by SwissRe says that B3i’s conceptually interesting solutions did not seem to be profitable. In essence, the project was shut down because of a lack of demand that investors would have liked to see.
Others added that the initiative required an end-to-end view. For example, for the planned blockchain-based contracts to come to fruition, insurance companies will need to create smart contracts from the start, before reinsurance contracts can subsequently be created on DLT to achieve the desired efficiencies. According to investors, this also shows the amount of effort and transformation this project will require: Insurers will have to transform their IT systems and build competencies to be able to create and handle smart contracts.
I personally believe that these reasons are all legitimate and understandable to a certain extent. Of course, insurers must adapt, which also costs a lot. Of course, there is not enough demand yet. And yes, it may not be profitable now; at a stage where the solutions are literally still being developed. But the conclusion from all these reasons to stop funding the project is simply wrong.
It takes just that effort to tackle what are admittedly huge undertakings. And it takes exactly these larger insurance companies in a consortium and joint effort to create end-to-end solutions. Unlike the incumbents, start-ups without centuries of experience and large capital reserves will likely not be able to implement the necessary change.
To make matters worse, B3i’s insolvency comes at a time when the entire crypto market is in a critical situation, to say the least. Therefore, it sends the wrong signals to the emerging sector, and anyone involved in crypto. At a time when many people have lost confidence after the bankruptcy of 3AC, the crash of Terra and other scandals, the insurance industry had a unique opportunity to walk the opposite direction. Instead of further demonstrating DLT’s proven strengths in the insurance industry, B3i’s bankruptcy highlights AND rebuilds all the obstacles. By claiming DLT in the insurance industry requires too much effort and money, traditional insurers are recreating exactly what they criticize.
But start-ups and blockchain-based insurance builders should not be discouraged. There are still many fields in which the industry can be improved — even though it will be difficult to create a holistic solution for entire processes. In fact, B3i’s insolvency shows once again that it will take the effort of start-ups to change the industry.
As always, this is not financial advice. If you liked this article and want to join me on me exploring decentralized insurance, follow me on Twitter. Thanks for reading!