Patrick Schmid has a Phd in Economics and is the Vice President of RiskStream Collaborative (previously known as the RiskBlock Alliance). In this fascinating episode he provides an expert opinion and process for calculating ROI for blockchain applications. This is a must listen episode for anyone looking to develop blockchain solutions and need a functioning model to be able to calculate expected ROI.

 

What is blockchain?

Patrick proposed two definitions:

Formal definition

Blockchain is a distributed ledger that maintains a constantly growing list of chronologically added records in the form of blocks. Within each block the data (e.g. transactional data or smart contracts) is confirmed and verified through this decentralised consensus process. This process removes the need for an intermediary to be involved in verifying and confirming transactions. Therefore, it establishes trust without the usage of a centralised authority. This is why, blockchain is often referenced at the trust machine. It is the decentralisation of trust where the data was once stored in one location and the trust was provided by one party. With blockchain the data is broadcast to all parties within network and the entire community is providing the consensus through the protocol itself.

Informal definition

Blockchain basically meshes the network with database/distributed database/ledger through encryption to provide advancements in ecommerce or transactions, or computing via smart contracts.

 

What is the Institute & how did its blockchain initiative start?

The Institute is a 501c3 not-for-profit that was set up over a hundred years ago out of the Wharton School at the University of Pennsylvania. The Institute provides knowledge-based solutions with the goal to make the risk management, in the insurance industry, more efficient for industry participants and consumers.

The Institute came across blockchain through their existing research when Patrick was leading their enterprise research whose goal was to provide some market insights and trends. Some of the early trends coming out of this research was that the insurance industry was going to continue to undergo employment changes. For example, careers in analytics were going to continue growing whilst traditional careers were expected to either remain stagnant or shrink.

Patrick had developed an early personal interest in bitcoin, cryptocurrency and blockchain. In 2015 Patrick discovered smart contracts and R3’s emerging banking consortium. It became apparent that there was a need to develop a thought on blockchain for the insurance space. After some extensive research and discussions with numerous players in the space, Patrick made some recommendations to the senior management team to consider starting a blockchain insurance consortium in 2016. He felt that a not for profit would be perfectly suited to provide the network for the insurance industry. The Institute’s Board, which represents 40 – 50 CEOs that represent 60-70% of domestic insurance premium volume, reviewed the recommendations and supported them. Now RiskStream is not only doing this in the P&C industry but also expanding to Canada by working with LIMRAto start working on the life and annuities as well.

 

What is RiskStream Collaborative?

RiskStream’s perspective is that DLT (distributed ledger technology) is network driven, whilst the technology is here to answer pain points that the insurance industry faces, they feel that a non-partisan arbiter is needed to bring the industry together to design, test,