Blockchain, currently best known for its role in enabling crypto currencies and—bizarrely—virtual cats, is a technology that only a handful of experts truly understand. The basics, though, and the way they can be applied to business, are already clear. The technology creates a kind of uber-ledger that records transactions permanently, transparently, and immutably. Spend a bitcoin (or buy a cryptokitty), and you leave a time-stamped record that’s updated across a decentralized, replicated database. No individual owns the data, and taken together, the “blocks” of data constitute a fully transparent single version of what has taken place.
For the insurance industry, perhaps the most important aspect of blockchain is that it can instill trust in transactions between parties who do not know each other. While only a handful of companies have already implemented blockchain-based initiatives, the potential is clear in multiple areas:
Identity management: Insurers, in order to provide their services, need to identify their counterparties. Today, information on these is typically scattered across multiple systems and vendors, including agents. Customer validation is carried out by both the insurer and various other providers. A mutualized know-your-customer process via a shared, distributed ledger would be easier to carry out, thus lowering the expense of customer onboarding. It is also conceivable that a central, know-your-customer utility would provide identity management for a number of insurance companies, so that they could share the cost.
Fraud detection: Fraudulent claims for obvious reasons represent a cost that insurance companies attempt to reduce. Insurance companies could make use of a blockchain solution in the form of a distributed ledger across industries to validate the authenticity, ownership, origin, and path through the supply chain of goods and documents; the identity of people involved in transactions; and the date and time of policy issuance.
Peer-to-peer insurance: While blockchain is not necessary to create a peer-to-peer business model, it is easy to see how it could make P2P far more robust and appealing to consumers. As blockchain creates transparency and trust for consumers, companies can move more aggressively toward automated administration of peer-to-peer smart contracts.
Multiple-risk participation: In multiple-risk participation, multiple insurers agree to take a portion of the responsibility for a large potential loss. In the traditional model, the coordination of these multiple insurers is prone to error and inefficiency due to the variety of communication modes – phone, email, fax, paper – and the number of iterations between parties. In some cases, this leads to disagreement regarding the final terms, resulting in claim settlement delays, additional expenses, and in some cases litigation. Applying blockchain technology, participants could register their reference data, including their participation level, and state their commitment in a transparent and immutable form without using a central clearing authority.
Blockchain, like the Internet itself, is a technology that will grow in value as it is more widely adopted and as companies (and customers) develop standards and learn how to cooperate effectively. Blockchain in the insurance industry is in the very early stages. Recently, insurance companies’ interest in the technology has increased, and more insurance companies are testing its application for their internal processes through pilots. B3i, the Blockchain Insurance Industry Initiative, grew in a few months from five founding members in October 2016 to 15 members in February 2017, and will test the potential of blockchain for the insurance industry.
For more, read the full report from Oliver Wyman, ZhongAn Insurance, and ZhongAn Technology: Technology-Driven Value Generation in Insurance.