According to recent market research, blockchain in insurance will expand from $64.5 million of revenue and cost savings in 2018 to $1.4 billion this year -- a compound annual growth rate of 85%!

Blockchain has the power to bring about significant efficiency gains, cost savings, faster payouts and fraud mitigation while allowing for data to be shared in real time among various parties in a trusted and traceable manner. Insurers are looking to harness the power of blockchain to infuse insurance processes with the three T's: trustworthiness, transparency and tamper-resistance.

As such, they are attempting to reinvigorate the very roots of the insurance industry.

Advantages of Blockchain

The application of blockchain for insurance industry makes absolute sense when one considers the following advantages:

Stronger Trust Mechanism

Blockchain technology has set the gold standard for trust and fairness. The distributed and immutable nature of blockchain ledgers makes them more transparent and reliable. In addition to inspiring accountability, the consensus algorithm of blockchain technology ensures that all stakeholders, be they policyholders, insurers, agents or brokers, agree on the underlying principles of the policy. Such measures set the stage for smart contracts that establish provenance while maintaining auditability. Blockchain can also establish a tamper-proof repository of customer data that can be safely shared among organizations.

Blockchain can also reduce risk of error and duplication of effort through this mechanism of cooperation, saving time and resources. Overall, it improves visibility of customers’ activity across firms, improving compliance and regulatory oversight.

Room for Automation

The insurance industry gets bogged down by money- and time-wasting inefficiency stemming from billions of forms, human error and poor communication among parties. Digital ledger systems like blockchain can help automate outdated processes, save billions of hours of paperwork each year and reduce human error because all forms and data are safely stored along the chain.

Smart contracts can achieve a lot more than granting visibility to transactions. Insurance agencies using blockchain-based smart contracts can inject automation into insurance processes and workflows. As the name indicates, smart contracts are self-actualizing lines of code that execute when their governing conditions are met. Accordingly, setting these ground rules can act as the rule-based algorithm that automatically sets off the smart contract. 

Better Data Management

The rapidly digitalizing world churns out high volumes of data that can benefit insurers. However, data management can be a nightmare. With blockchain, such data packets can be stored on the network where an AI-powered engine can read and vet this data. Such a system helps establish a single source of truth and improve products and services in multivariate ways.

Blockchain technology can also be used in secure and transparent data management by providing a decentralized ledger for recording transactions. This eliminates the need for intermediaries, reducing the risk of data breaches and cyber-attacks.

Faster Fraud Detection

One of the biggest pain points of the insurance industry is fraud. Blockchain’s innate feature of capturing time-stamped transactions with complete audit trials makes it extremely difficult for fraudsters. For instance, a blockchain-powered ledger can be used to track data around high-value items like jewelery. This ledger can also replace authenticity certificates to avoid duplicate claims, fake replacements and fake insurance claims. 

Blockchain for the insurance industry can maintain an auditable trail of policyholder behavior. Such a trustworthy and reliable record can act as a precedent for tracking customer behavior. Any action that does not fit the defined set of patterns can be flagged as fraud or attempt to defraud, and immediate action can be taken to mitigate its effect.

See also: Blockchain’s Future in Surety Industry

Lower Administrative Costs

The use of blockchain will reduce operational and administrative costs in many ways. For starters, it will help consolidate and validate data automatically, which significantly reduces clerical tasks. At the same time, it helps establish policyholder identity and performs routine activities like know your customer (KYC) verification or anti-money-laundering (AML) processes.

Similarly, blockchain can even support automated claims processing by checking policy-related data and adjusting the claim. Such actions will cut the need for human resources, reduce costly errors and improve overall cost-efficiency.

Addressing Underserved Markets

The low cost of smart contracts and their transactions means that many products can be rendered more competitive for penetration of underinsured markets in the developing world. 

Practical Use Cases

Here are some examples of different verticals of insurance using blockchain technology to solve real-world problems:

Health and Medical Insurance

Medical insurance using blockchain-based patient files can maintain an accurate and detailed medical record on the network. It can also be used to establish a ring of security as such confidential data does not pass through several hands and only authorized personnel can handle it. Healthcare providers can seamlessly share data with insurers, which will allow the latter to process claims faster and without any risks.

Travel Insurance

Disruptions during travel can upset a well-curated itinerary. Travelers can offset such unpleasant shocks and protect their interests through travel insurance. With the involvement of blockchain technology in insurance, smart contracts can automatically execute in the event of flight cancellation or delay, and the policyholder will get the reimbursement directly in their account even without having to raise a claim!

Property and Casualty Insurance

Blockchain can transform the property and casualty (P&C) segment of insurance. From smarter underwriting and vigilant risk assessment to seamless onboarding and smart policy generation to claims registration and payment -- blockchain-based P&C insurance software can improve everything. Moreover, it grants coverage to a variety of assets, from homes to automobiles, which come under the ambit of P&C insurance and centralizes all the insurance-related data.

See also: Blockchain in Insurance: 3 Use Cases

Closing Thoughts

It is evident that blockchain technology is steering the industry in the right direction. Different verticals of the insurance industry can enjoy the benefits of blockchain technology, be it industry-specific or generalized.

However, the goal of insurance using blockchain is quite complicated. You would still have to reinforce security against cyberattacks, maintain consumer data privacy and confidentiality and justify the cost of a technology overhaul. Fortunately, you can overcome any potential problems with the right set of developers or technology partners that can lead the way.

It’s not uncommon for agents/brokers and carriers to express frustration with one another. For many risks, especially those more complex, agents are prone to gripe about carriers’ submission processes, which are often laborious and require a lot of back and forth with the underwriter. On the other hand, carriers frequently encounter challenges with agents misunderstanding their appetite or adopting new tech capabilities slowly. These challenges – and others – underscore the importance of carriers investing in digital capabilities to support distributors and improve customer experience, increase efficiencies, and grow business. 

SMA recently surveyed agency executives in commercial lines to understand their satisfaction with insurers’ digital sales and servicing offerings and the capabilities they believe insurers should invest in to support their needs. The study’s results were published in two separate research reports focused on the small commercial and mid/large commercial segments. 

Immediately, the research shows significant misalignment between commercial lines agents’ most-wanted digital sales capabilities and carriers’ current investment plans across the 16 options presented. Of course, it is unrealistic to expect 100% alignment across the board, as the objectives and needs of agencies and carriers are different. But as co-dependent partners, there should be closer alignment in the many areas where there is mutual advantage.   

In the mid/large commercial arena, over two-thirds of agents seek agency management system (AMS) real-time upload integration, whereas only a quarter of carriers are investing in this technology. In this segment, carriers are also hyper-focusing on enhancing their agent sales portal, but only 14% of agents say this area currently needs greater improvement. In contrast, agents and carriers in small commercial lines see eye-to-eye on the needs and investments in both of these capabilities. Instead, they do not align with other technologies, such as risk appetite and proposal tools.  

See also: Dissatisfaction With Digital Sales Capabilities

There is greater consensus among commercial lines agents and carriers regarding the 17 digital servicing capabilities featured in the survey. In both small and mid/large commercial lines, agents’ needs align with carriers’ investments in commission dashboards and pay-a-bill technologies. Agents in mid/large commercial lines also emphasize the importance of self-servicing capabilities, such as policy download and claims filing capabilities, and carriers appear to meet demands in these areas. One area where commercial lines agents and carriers don’t align is in auto certificates. Half of mid/large commercial agents and 36% of small commercial agents say this is a top need for their practices. Still, fewer than 20% of carriers in both segments are funding projects in the capability.   

Despite agents and brokers becoming increasingly satisfied with digital sales and servicing offerings, there continues to be a division between where agents want carriers to invest and carriers’ actual investment plans. Agents want further investment in distribution technologies that will help them increase efficiency and service their policyholders. Carriers that can align strategies and investments with both their internal and distributor needs will differentiate themselves and become partners of choice for commercial lines agents and brokers. 

For more information on agencies’ digital strategies and priorities in small commercial and mid/large commercial lines, read our recent research reports: "P&C Agency Distribution: Digital Strategies and Plans for Small Commercial Lines in 2023" and “P&C Agency Distribution: Digital Strategies and Plans for Mid/Large Commercial Lines in 2023.” 

Where’s the distribution disruption?

When I started working in the insurance industry in 2015, I (regrettably) used the word “disruption” a lot. I was making a career shift from capital markets into a buzzy, fairly new space called “fintech,” and I became excited about the massive total addressable market (TAM) and archaic user experience (UX) in insurance. Insurance felt like a maximally unsexy, almost contrarian way to bet on the continued digitization of financial services. I was convinced that this meant radically changing and reinventing distribution.

A common narrative among industry outsiders at the time (like me) was that direct and fully online channels would inevitably displace traditional agent distribution. This turned out to be pretty naive and way off the ball. In the years that followed, we’ve seen a classic investment cycle rapidly play out, as insurtech surged and evolved into a consensus venture opportunity space. For a while, people even stopped asking me why I work in insurance. Insurtech attracted over $14 billion in private capital in 2021 alone, before macro turned and a spate of unsuccessful exits and broken IPOs crushed insurance investor enthusiasm along with revenue multiples.

Sources: Bloomberg Finance; Yahoo Finance (1/11/2023)

Today, as insurance investors learn from past mistakes, it’s worth thinking about which assumptions were wrong and how expectations evolved. I find it instructive to refer to the Gartner Hype Cycle (below), which plots evolving excitement levels and innovation themes over time. After parabolic growth and a steep descent to disillusionment, the valley we’re in today offers a great vantage point for retrospection and redirection. There are lots of valuable lessons to glean.

Source: Gartner

Some of the takeaways are macro and relevant across consumer fintech generally (e.g., growth at all costs isn’t great in a rising rate environment!). Other lessons, however, are specific to insurtech business models and therefore relevant as we look to the future. For example:

• Unvalidated underwriting frameworks drove large losses
• Lifeterm value (LTV) was stubbornly low, as cross-selling proved to be difficult and customer loyalty to insurtechs remained low
• High customer acquisition costs (CACs) worsened as the market became more crowded
• Customers turned out not to get super-excited about purchasing insurance products (especially the non-compulsory ones), even with a modern UX

See also: How to Prevent Agent Gaming

Another important learning (and the one I will focus on in this post) is that legacy distribution is much more resilient than insurtech enthusiasts (again, like me) anticipated. The core hypothesis that digitization would massively displace legacy/agent distribution did not bear out, and the disruptive potential of new channels was overestimated. The dynamic of legacy channels remaining relevant is something we’ve also seen in other categories — like retail, where there was a resurgence of focus on physical retail and omnichannel strategies after a head fake of e-commerce acceleration. Similarly, insurance agents continue to play an important role in distribution, and firmly coexist alongside the digital channels that emerged.

So much has changed in insurance over the past decade as digital innovation enabled new customer experiences, better price discovery and vastly more use of data. But one thing that’s hardly budged? The share of premiums through direct channels. Ninety percent of P&C products continue to be placed through agents, brokers and branches, and the number of independent P&C agents in the U.S. actually increased by roughly 10% from 2020 to 2022. Across P&C and commercial lines, the share of premiums owned by agencies increased between 2017 and 2021. So much for the disappearance of the insurance agent. Despite massive investment in new channels and years of COVID-related business interruptions, agent and broker distribution remains as relevant as ever.

Source: McKinsey

Ultimately, the call for the disruption and eventual disappearance of agents turned out to be wrong on two key fronts. First, it underestimated the centrality of the agency value proposition to purchaser habits and preferences. As we’ve said before at Equal, the business of insurance distribution is fundamentally built on relationships — and those relationships are crucial to customer purchasing decisions. In a 2021 survey of insurance purchasers conducted by Nationwide, 88% said they value having an agent to call, and more than 50% still value having an agent in physical proximity. Far from going extinct, independent agents and brokers remain the most important links in the complex and fragmented chain of insurance distribution channels.

Predictions also overemphasized the extent to which digitization would be a force for disintermediation. New technology turned out to improve agent and broker distribution more than threaten it. A 2021 survey of independent agents found that the majority are concerned about the disruptive potential of new technology, and yet virtually all respondents also said that new digital tools have made their job easier. McKinsey similarly reports that >60% of insurtechs operate within the traditional value chain, as opposed to prioritizing industry disruption.

See also: 4 Ways to Improve Agent Experience

Staying Power in a Changed Game

Agents, brokers and advisers will continue to play an important role in distribution. But it’s simultaneously true that the playbook for running and growing an enduring agency business has changed as a result of digitization. Consumers have made it clear that they want access to trusted agents with whom they maintain a relationship; but they are also increasingly demanding the convenience of virtual service and modern, digital user experiences. An overwhelming majority of insurance purchasers say they want personalized advice and products, yet >60% also prefer the flexibility to interact across communication channels. The data resoundingly shows that failure to deliver on consumer preferences has a sharp impact on topline performance.

Agents have demonstrated impressive staying power over the past decade, but even if the channel remains dominant overall, profits and growth will disproportionately go to the agencies that adopt digital best practices. As BCG put it, agents who “get by on charm…are a vanishing breed” and instead, top agents in the future will rely on “digital channels and AI-based insights.” Agents who fail to adapt will have their lunch eaten by agents who do.

For agencies willing to adopt digital best practices, there are clear advantages. A 2021 study conducted by Liberty Mutual and Safeco found that agencies that ranked in the top one-third on digital adoption experienced 70% higher revenue growth compared with the other two-thirds of agencies. And beyond topline growth, there is an equally compelling opportunity for agencies to leverage technology to increase their profitability. Legacy workflows are uncompetitive compared with data-driven and automated processes. The data is clear that cross-selling effectiveness, customer satisfaction and agent productivity can all be readily addressed and improved via technology.

The insurance space will continue to rapidly evolve–the secular trends catalyzing more digitization, more effective risk transfer and frictionless purchasing experiences are well in motion. While the thesis of digital-only distribution fundamentally failed, I have more conviction than ever that the age of digital transformation in insurance is here.

This article first appeared here. It is the first in a series of posts about digitization in insurance agencies and brokerages. Subsequent posts will explore technology applications, business model innovation and investment opportunities emerging from digitization of the agency stack.

Digital underwriting platforms are quickly becoming a business necessity rather than a luxury. Gone are the days of double and triple entry, as customers will no longer accept long wait times to receive their surety bond in the mail.  Businesses across varying industries and professions need surety bonds quickly, especially to maintain compliance, complete on-site projects and file with their local courts and municipal authorities. The archaic processes that still exist in today’s industry can no longer be endured.  

Despite the insurtech movement, the surety bond industry has been largely ignored when it comes to technology. The product is typically a smaller percentage of overall insurance professionals’ books of business, so there has not been a great deal of time or money spent on modernizing processes even though surety bonds remain a profitable and unmistakable source of revenue. The industry has been ripe for disruption for a long time.

Let’s dive into a few ways digital underwriting platforms will undoubtedly transform how carriers and agencies issue surety bonds in the future. 

1. Cut processing time by eliminating manual delays

While surety bonds enjoy historically low loss ratios, the same cannot be said for the expense side of the equation. Especially in the transactional space, where ease of access and delivery are king, expenses have hindered progress. End users will often spend time filling out multi-page applications to send to their insurance agent. The agent must then copy this information into a carrier legacy system or send it out for approval. This process can take days when the consumer wants the bond in minutes. All these hands-on efforts and back-and-forth hardly make a $100 premium—even though typically loss-free—worthwhile.

With digital underwriting platforms, processing times are cut dramatically. Agents can be more efficient, and end users receive their surety bond just minutes after submitting their application.  

2. Streamline operations through application programming interface (API) integration

Digital underwriting platforms offer various efficiencies to customers, agents, brokers and even carriers. At Propeller, we have developed a front-end system that allows both consumers and agents to interact with our experienced underwriters if needed to quote, bind and issue surety bonds in just minutes. This allows insurance agents to provide a seamless experience to their clients while simultaneously earning their standard commissions. Insurance professionals are completely removed from the issuance and billing process, allowing them more time to focus on what they do best: selling insurance and surety bonds.

API connectivity also helps carriers close the loop to eliminate the final entry of each transaction, which provides efficiencies by streamlining the reporting and revenue recognition process.

See also: Automation 2.0: What's After RPA

3. Guarantee a seamless and efficient customer experience every time

These new underwriting platforms are changing the way the industry operates and are forcing agents and carriers alike to adapt to the new normal. With customer experience driving over two-thirds of loyalty to brands, insurance professionals can no longer wait for the business to come through the door; they must meet the customer where they are.

The end user, whether a contractor, lawyer, mortgage banker or freight broker, is already using the internet to purchase everything else in their life. They are looking for nothing less than speed, ease of use and same-day service.

Oftentimes, people forget that the actual customer in the process is the principal—the person or business buying the bond—not the insurance agent or the underwriter. True digital underwriting platforms will solve the needs of all members of the value chain, which includes the principal and the obligee (the entity requiring the bond). The ability to instantly issue surety bonds increases efficiencies across industries by keeping projects moving, roads open and courts functioning.   

Digital underwriting platforms and digital surety bond issuance are here to stay. Successful adopters of these technologies understand that these tools are making jobs easier, not eliminating them. Agents and underwriters who embrace these platforms will have more time to spend on higher-value tasks and clients while letting the platforms underwrite and service lower-ticket items.

Tech-savvy users will find ways to put the technology in customers' hands at the point of sale. At that point, the technology is not only cost-saving but also a revenue generator. Only time will tell the full extent of these digital underwriting platforms' impact on the industry, but if the last several years are any indication, this is just the beginning.

Join us as we host a special webinar in honor of Women’s History Month. Women’s History Month is a time to acknowledge and celebrate the contributions of all women in the risk management and insurance industry, including those that have broken down barriers and inspired innovation. Studies have shown that women outnumber men in the insurance industry and companies that have more gender diversity on their executive teams are more profitable when compared to companies without. While great progress has been made in gender equality, there is still a long way to go to ensure that the lived experience of women in the industry is heard and understood and that diversity, equity, inclusion and belonging remain a priority in company policies and practices. During this panel discussion, the speakers will discuss the successes and challenges that they have endured, as well as the work that the risk management and insurance industry can do to better support and increase the representation of women.

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The purpose of the webinar will be to discuss how far Black people have come in history, the industry, and what it will look like in the foreseeable future. 

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Neurodiversity refers to the diversity of human brains, and considers differences of how our brains are "wired" as simply another natural variation in humans. It is often used to specifically cover autism, ADHD, dyslexia and dyspraxia, amongst others. Rather than thinking there is something wrong or problematic when some people don't operate similarly to others, neurodiversity embraces the differences in brain function and behavioral traits as a natural element of how diverse the human population is. During this 45 min session, the panelists will give an introduction to neurodiversity and explain how we can we access its amazing contribution to diversity of thought and remove the obstacles to successful neuroinclusion. This webinar is targeted at anyone interested in learning more about neurodiversity, whether HR professionals, educators, advocates and recruiters.

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June is Pride Month, an important time to celebrate and a reminder to continue to advocate for the human rights and full equality of the LGBTQIA+ community. Join us as we talk with business woman and former CEO of Lloyd’s of London Dame Inga Beale, who will share her journey in showing up as her authentic self, challenges faced throughout her career and the role of allies in celebrating and affirming the identity of those within their companies. The conversation will also explore ways to promote visibility and encourage inclusivity beyond Pride Month in order to impact meaningful change within the industry and to develop deeper advocacy.

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Risk management and safety management are often independent disciplines among most organizations. Although both seek similar goals and outcomes towards reduced losses and more efficient financing of these losses, these departments may not necessarily work together. These commonalities often lead to duplicate and overlapping efforts that may be inefficient and expensive. Risk managers often lack visibility into safety programs, which can impact workers’ compensation claims and insurance premiums. And safety leaders frequently don’t have visibility into the financial impact of their programs, meaning they may struggle with organization buy-in on safety initiatives. But what if risk and safety teams were able to work more effectively together?

Join this webinar sponsored by Origami Risk moderated by Patrick O’Neill, President, and Founder, Redhand Advisors to learn about:

• The benefits of risk and safety professionals collaborating
• How technology can facilitate that collaboration
• Real world risk and safety technology examples from professionals at Cheesecake Factory and Corewell Health

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Join us as we host a special webinar in honor of Hispanic Heritage Month featuring three Hispanic insurance industry leaders and experts. From September 15 to October 15, we celebrate National Hispanic Heritage Month, which was first observed as Hispanic Heritage Week in 1968 under President Lyndon Johnson. In 1988, President Ronald Reagan expanded it to a 30-day celebration. With nearly a quarter of the U.S. population identifying as Hispanic or Latina/Latino, Hispanic Heritage Month is an important time to recognize the achievements and reflect upon the many ways Hispanic and Latina/Latino American cultures have influenced and contributed to the insurance industry. During this panel discussion, the speakers will discuss the challenges that they have faced as well as the work that the industry can do to increase representation, belonging and accessibility of the industry to Hispanic and Latina/Latino communities.

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