Allianz, an international insurer based in Europe, joined forces with Nephila Capital, a Bermuda-based investment manager, to test blockchain technology in a natural catastrophe swap transaction.

According to Reuters, Allianz expects the technology to encourage trading in catastrophe bonds, which transfer the risk of natural disasters such as hurricanes to investors.

In a statement issued on Wednesday, the companies said that the test run demonstrated that blockchain-based contracts could substantially accelerate and simplify processing and settlement of payments between insurers and investors.

Blockchain or distributed ledger technology eliminate the need for third-party verification, thereby facilitating faster and more secure transactions.

"Delays and the risks of human error are completely removed," Allianz underwriting officer Richard Boyd said, as quoted by Reuters.

Explaining how blockchain technology could play a pivotal role in catastrophe bonds, Allianz said that the technology could cut down the time taken for "Cat bond" payments between insurers and investors – which currently takes weeks or months – to few days or even hours, by the use of “smart contracts”. Smart contracts are agreements that are automatically executed via the blockchain when a set of predetermined conditions are met.

Allianz further emphasized on the need to start discussions with regulators on how to manage the technology to benefit customers.