Credit Insurance Application on Corda
A prototype of a digital platform on distributed ledger technology for the credit insurance space.
A software application for automation and optimisation of the credit insurance process, based on Corda, would create value for both insurers and insured parties by providing cost savings, smooth experience, immutable records, and regulatory compliance.
Utilising the Corda Network, the participants could self-organise in business groups, communicate confidentially and transact securely across the network.
Credit insurance, in the form of business credit insurance, trade credit insurance, export credit insurance, is an insurance policy and a risk management product offered by private insurance companies and governmental export credit agencies to business entities wishing to protect their accounts receivables from loss due to credit risks like protracted default, insolvency or bankruptcy.
Currently the credit insurance global market size, in some estimations, exceeds USD 10 billion per year, with Asia-Pacific, Europe, and the United States being most active. While the current numbers sound impressive, according to industry experts there is significant growth potential. Demand for credit insurance is expected to grow, penetrating more geographical regions and involving participants from more industries.
Credit insurance plays an important role in international trade, as well as in domestic transactions, providing companies with the protection they need. Using credit insurance, companies can make sure their cash flows are protected, their earnings are secure, and their growth is faster.
The risk of non-payment is transferred to the insurer. In order to protect themselves too, credit insurers have to make sound decisions on coverage request handling, risk management, claims handling, debt collection, regulation compliance.
An application, built on Corda, would provide insurers and their customers with the necessary tool for a smooth user experience, automated handling of repetitive tasks, confidentiality, interconnection with outside information sources, secure, immutable records, and regulation compliance.
Among possible developers of a credit insurance process automation software based on Corda, INDUSTRIA Technology stands out. With solid experience in Corda application development for the insurance industry and otherwise, and a record of timely and high-quality deliveries of sophisticated software products and services, INDUSTRIA has proven to be the trusted partner worthy of the task.
Why Corda?
Corda is an open-source blockchain platform that is built to record and manage contracts between mutually distrusting parties. Corda was built by R3 — a leading enterprise software firm, founded in collaboration with some of the world’s largest financial institutions. It was designed to meet the rigorous requirements imposed by financial service and insurance industry regulators, conform to industry standards and deliver the promise of blockchain technology making it applicable to a growing number of business cases in numerous industries.
Corda is different from most of the other DLT implementations in that:
- The communication in Corda is point to point, as opposed to broadcasting to the entire network, thus resolving any privacy concerns. In Corda, only the parties involved in a transaction can see it.
- It is permissioned — the participants in the Corda network are known entities, who have been invited and have obtained permission to join the network.
- Corda can utilise “smart contracts” with legal prose so that they are compatible with traditional legal systems and could be material in case of a dispute in the real world.
- The consensus mechanism in Corda is based on validation from specific network participants called notaries, avoiding the time consuming and energy inefficient block mining. Consensus, in the context of a distributed ledger, means that all participants must see the same data and agree to it and to the history leading to the current state.
Currently, there are two versions that make up the Corda platform — Corda Enterprise and Corda Open Source. Corda Enterprise is the commercial version of Corda. Corda Enterprise is designed to meet the industry standard needs of the institutions that require commercial production capabilities. Corda Open Source is an open application framework that is available to global developers and designed for early adoption, integration, and proof of concept development.
To facilitate the application of the platform, the Corda developers have deployed the Corda Network — a publicly available network of nodes operated by network participants. The Network enables participants to move value and identity data between the businesses and to reach agreements and automate transactions that are legally binding.
Much like the Internet, the Corda network provides the backbone on which various applications could be run. The network can support a number of self-organised sub-groups of participants, and each group would have an operator — a party that manages admission to the subgroup and the application of the subgroup rules.
Given the unique architecture of Corda, a credit insurance application based on Corda would bring benefits to all participants:
- The permissioned access to the network guarantees that all parties are known entities provides trust and enhances regulatory compliance with KYC (Know Your Customer) and AML (Anti-Money Laundering) rules.
- The point-to-point communication on Corda makes sure that the participants in a transaction share the same ledger and are in agreement of shared facts while preserving the confidentiality of the transaction.
- A notary node or cluster guards against any double-spending of assets and provides for transaction finality.
- Participation of all involved parties on one network creates the possibility of third-party verification of facts of a transaction or a claim in real time, saving time and costs for the participants.
- A participation of a regulator on the network makes possible real-time regulatory observation and eliminates the need for costly and time-consuming reporting by the involved parties.
Corda Network Architecture
In a typical trade credit insurance setting, a Seller would give a Buyer a credit, in the form of delayed payment, for goods or services specified in a contract. To guarantee the receipt of funds, the Seller would request coverage by an Insurer for the risk that the Buyer does not pay within a specified date. The Insurer makes his assessment of the risk and proposes an insurance policy. The policy states that in case of non-payment by the Buyer, the Insurer would pay the Seller percentage of the amount owed by the Buyer. The sides — Seller and Insurer — agree and the policy is signed
The Corda network corresponding to such a setting would, ideally, have the following architecture:
- Insurer node. The insurer would be the network manager, providing access to the network and onboarding of participants. The insurer node would observe all the transactions on the network, and all the shared facts relevant to an insurance policy. It will handle coverage requests, propose and sign policies, handle claims, close cases.
- Seller (Creditor) and Buyer (Debtor) Nodes. Communication between the Seller and Buyer nodes would contain the details of the trade — invoices, volumes, prices, payment terms, transport details, etc. The Seller and the Buyer would have a shared ledger about the facts of the trade, so that reconciliation ambiguities are avoided. The Insurer node would observe all the details of the insured trades.
- Seller’s Bank Node. Provides all payment related information.
- Notary node or cluster of nodes. Validating the transactions and ensuring against double-spending, for example of an invoice presented twice.
- Regulator node. The regulator could observe the transactions in real time and receive all relevant information.
- Nodes of transportation companies, inspection service providers (e.g. SGS, Intertek, Eurofins etc.), credit scores providers (e.g. Dun and Bradstreet, Experian etc.). These participants would supply relevant information about the parties and the transactions and could verify facts that substantiate or refute a claim. Alternatively, connections to such information providers could be realised with APIs.
A Corda network with such architecture would incorporate all the relevant participants and allow for the timely collection of necessary information for decision making and process automation and would create value and save costs for the Insurers and their customers.
The Credit Insurance Application
Insurer User Interface
The application supports all stages of a credit insurance company’s operations.
- Customer request for coverage. The customer requesting coverage fills a comprehensive form, detailing their business and credit insurance needs.
- Credit insurance policy preparation. Depending on the customer industry, location, size, coverage amount, and any other relevant details, a policy template could be selected from a template library.
- Risk assessment. The application supports interfaces to outside service providers (e.g. Dun and Bradstreet, Experian, etc.) as well as an internal risk assessment module. The module could be parameterised to set limits to the exposure of the insurer to geographical regions, industries or other parameters, as well as coverage amount limits on account level.
- Automatic invoicing of fees, premiums, costs, as per the insurance policy.
- Payments from customers and debtors. The application supports handling information from banks — network participants — regarding payments received from customers and debtors and allocation of such payments to the correct accounts.
- Claims handling. The application supports verification of facts of the claims from third parties -banks, transportation companies, inspection service providers (e.g. SGS, Intertek, Eurofins, etc.)
- Compensation payouts. Payouts or refusals of payments to customers could be automated when facts of the claims are verified from third parties.
- Debt collection. The application supports the amicable collection of funds, automatic generation of reminder letters, automatic allocation of received funds to debtor dossiers, as well as automatic sending of cases to outside collecting agencies.
- Case closure. Cases could be closed automatically when all operations on a case have been executed or expiration dates have passed.
Customer Experience
The application supports all operations of the customer of the credit insurer — the insured party.
- Request for coverage. The customer fills a form with details about their business and coverage needs.
- Information tracking. The customer can track the status of the requests for coverage, declare new sales on a covered contract, view history of previous coverage requests, policies, invoices, claims, payments, etc.
- Claims submission. The application supports submission of claims by the insured party with details enabling third-party verification.
Regulatory Compliance
The Corda network architecture provides for the possibility of participation of a regulator on the business network, eliminating the need for costly information curation and reporting by the involved parties.The regulator receives all relevant information in real time, and can generate reports by selected criteria.
The credit insurance application, based on Corda, provides a secure, fast, comprehensive solution for both insurers and insured parties alike, by delivering smooth user experience, automation of repetitive tasks, confidentiality, third party verification of facts, immutable records, and regulation compliance.
About INDUSTRIA
INDUSTRIA is an award-winning global consultancy and development firm that creates web, blockchain, and fintech solutions, helping both companies and ecosystems significantly reduce the costs and complexity of doing business. Official partner of R3.
INDUSTRIA delivers quality fintech, blockchain technology, and web solutions based on the time and materials model. To talk to us about making your idea a reality, contact us here or follow the links below.
