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Will Blockchain End Up Like 3DTV?

When technology is baked into a device, we rarely give it much thought. We buy a smartphone for its utility – not its operating system. Sometimes a new technology dramatically changes how everyone does things; the internet is a good example. Some plausibly great innovations, such as 3D television, just never gain traction. Which of these outcomes will blockchain have?

Recently, blockchain has emerged as a technology that will potentially transform industries in a way similar to what the Internet did a couple of decades ago. Still a nascent technology, its many uses have not yet been discovered or explored.

Most people know a little about blockchain:

    • It lets multiple parties agree on a common record of data and control who has access to it.
    • Its platform makes cryptocurrencies like bitcoin possible.
    • Movement of cryptocurrency verified by blockchain allows peer-to-peer cash transfers without involving banks.
    • Blockchain is a permanent, auditable record, so any tampering with it is obvious.

Some people think blockchain will transform security in financial services and fundamentally reshape how we deal with and trust complex transactions, though this could be a response to hype or a fear of missing out. Many other people ask why and how they should use blockchain.

On the face of it, using a shared (or distributed) ledger to process multiple transactions doesn’t seem so revolutionary. Blockchain is essentially a recordkeeping system. Perhaps its association with cryptocurrency – such as bitcoin – lends it a darker, more enigmatic edge than the software traditionally used for processing multiple transactions. One way or another, insurers face pressure to update antique systems with new ones that can compete with the demands of a digital world, and that means incorporating blockchain technology.

A distributed ledger of transactions

A blockchain can be seen as an ever-growing list of data records, or blocks, that can be easily verified because each block is linked to the previous one, forming a chain. This chain of transactions is stored on a network of computers. For a record to be added to the chain, it typically needs to be validated by a majority of the computers in the network. Importantly, no single entity runs the network or stores the data. Blockchain technology may be used in any form of asset registry, inventory and exchange. This includes transactions of finance, money, physical property and intangible assets, including health information.

Because blockchain networks consist of thousands of computers, they make any effort to add invalid records extremely difficult. Every transaction is secured using a random cryptographic hash, a digital fingerprint that prevents its being misused. Every participant has a complete history of the transactions, helping reduce the chance of transactions being corrupted. Simply put, a blockchain is a resilient, tamper-proof and decentralized store of transactions.

Complex processing and automation with smart contracts

Blockchain ecosystems enable a large number of organizations to join as peers to offer services, data or transactions that serve specific customers or complex transaction workflows transparently. These ecosystems can automatically process and settle transactions via smart contracts that encapsulate the logic for the terms and triggers that enable a transaction.

Smart contracts are created on the blockchain and are immutably recorded on the network to execute transactions based on the software-encoded logic. Transparency through workflows recorded on the blockchain facilitate auditing. Peers and partners within a blockchain ecosystem independently control their business models and the economics without the need to use intermediaries.

Self-executing smart contracts can be used to automate insurance policies, with the potential to reduce friction and fraud at claim stage. A policy could be coded to pay when the conditions are undeniably reached and decentralized data feeds verify that the event has certainly occurred. The blockchain offers enhanced transparency and measurable risk to this scenario.

Parametric insurance, which operates through smart contracts with triggers that are based on measurable events, can facilitate immediate payments while decreasing the administrative efforts and time. Effectively, the decision to pay a claim is taken out of the insurer’s hands. Other possible models are completely technology-based without the need for an actual insurance company. The decentralized blockchain model lends itself well to crowd-sourced types of insurance where premiums and claims are managed with smart contracts.

See also: Blockchain’s Future in Insurance  

Blockchain-based insurance

New insurers using blockchain are emerging and offering increased transparency and faster claims resolution. Here are some examples:

    • Peer-to-peer property and casualty insurer Lemonade uses an algorithm to pay claims when conditions in blockchain-based smart contracts are met.
    • Start-up Teambrella also leverages blockchain in a peer-to-peer concept that allows insured members to vote on claims and then settles amounts with bitcoin.
    • Dynamis provides unemployment insurance on a blockchain-based smart contract platform.
    • Travel delay insurer insurETH automatically pays claims when delays are detected and verified in a blockchain data ledger.
    • Etherisc is another new company building decentralized insurance applications on blockchain that can pay valid claims autonomously.

Traditional insurance companies, such as AXA and Generali, have also begun to invest in blockchain applications. Allianz has announced the successful pilot of a blockchain-based smart contract solution to simplify annual renewals, premium payments and claims submission and settlement.

Blockchain has the potential to improve premium, claim and policy processing among multiple parties. For example, in the last year the consultancy EY and data security firm Guardtime announced a blockchain platform to transact marine insurance. This platform pulls together the numerous transactional actions required within a highly complex global trade made up of shipping companies, brokers, insurers and other suppliers.

A consortium of insurers and reinsurers, the Blockchain Insurance Industry Initiative (B3i), has piloted distributed ledger technology to develop standards and procedures for risk transfer that are cross-market compatible. Whether or not the outcome is adopted industry-wide, it seems important for digital solutions to be created with this transparency and inclusiveness in mind.

There is clear potential for blockchain in reinsurance where large amounts of data are moved between reinsurers, brokers and clients, requiring multiple data entry and individual reconciliation. Evaluating alternative ways of conducting business is one reason for the collaboration of Gen Re with iXledger, which can explore ideas while remaining independent.

Handling of medical data and other private or sensitive information

Individuals will generate increasing amounts of personal data, actively and passively, from using phones and Internet of Things (IoT) devices, and processing digital healthcare solutions. Increasingly, consumers will want control of this scattered mass of digital data and share it with whomever they choose in exchange for services. This move aligns perfectly with the concept of a “personal data economy.” Think of information as currency and think about using blockchain to secure private data and reveal it in a secure and trusted manner to selected parties, in exchange for something.

Electronic health records are now common. Several countries use blockchain to secure patient data held digitally. This helps counter legitimate concerns about how sensitive personal data can be kept secure from theft or cyber-attack. Code representing each digital entry to the patient record is added to the blockchain, validated and time-stamped. A consortium of insurers in India is using blockchain to cut the costs of medical tests and evaluations, and to ensure the data collected is kept secure, along with other benefits including identification of potential claims fraud.

Looking to leverage the data economy, companies may employ innovative insurance propositions to engage people. Because the propositions will rely on shared data, people may be put off, fearing a loss of control over their personal information. While this fear poses a huge challenge for an industry seeking to improve its reputation for trust, blockchain technology may help insurers to reassure customers the digital data they share with them is safe.

Verification of documents

Verification of the existence and purpose documents in banks and insurance companies relies on storage, retrieval and access to data. A blockchain simplifies this process with its open ledger, cryptographic hash keys and date-stamped transactions. Actual hard copies of documents are not stored; instead, the hash represents the exact content in a form of scrambled letters and numbers. A change in a document will be exposed because it will not match the encoded one. The effect is an immutability that proves the status of the data at an exact moment and beyond doubt.

Blockchain technology is a “trustless” system because nobody has to trust anybody else for the system to function; the network of users acts together to vouch for the accuracy of the record. Examples of blockchain protecting patient records demonstrate its potential to implement other trusted and secure transactions with less bureaucracy.

There are other opportunities for insurers to move to a digitized paradigm and catalyze efficiency gains; blockchain need not be reserved for cross-industry platforms, and it’s not only useful in multiparty markets with high transaction volumes and significant levels of reconciliation; smaller-scale solutions can bring benefits, too.

Features that ensure privacy and data security

Beyond driving efficiencies, blockchain employs agreed standards for data care, which reduce the vulnerability of data that arises with the mass of sensitive data that digital connectivity creates. Other features that enhance privacy and data security include the contract process: Transactions are not directly associated with the individual, and personal information is not stored in a centralized database vulnerable to cyber-attack. Insurance companies, as well as technology companies, are accountable to their users for the security of their devices, services and software, and hackers are less likely to target enterprises with strong security.

Multiple participants and the removal of a central authority

Transparency, audit-ability and speed are standard requirements for any organization to successfully compete and transact in an increasingly complex global economy. Data is a valuable catalyst to that process and is complemented by blockchain’s ability to organize, access and transact efficiently and compliantly.

Trusted transactions require access to valuable data, and blockchain facilitates efficient access across multiple organizations. The economics for data usage will drive new business models fueled by micropayments, which will require efficiencies to scale. Business models based on data aggregation by third parties in centralized repositories with total control and limited transparency will be replaced by distributed blockchain-enabled data exchanges where data providers are peers within the ecosystem.

Decentralized peer organizations can use the blockchain for permission access, and for facilitating payments, to ensure total control of their economic models, without having a centralized authority. Data access and transactions are controlled directly by each member of the ecosystem, with complete transparency and immediate compensation.

Token economies

Ecosystems supporting peer organizations that transact or share data will require an effective mechanism for micropayments. These business models require efficiency, with less overhead than traditional account payable and account receivable workflows.

Event triggers, cryptlets that enable secure communication between blockchain, and external verification sources (oracles) will execute based on predetermined criteria, and token payments will be made simultaneously. Counterparty agreements may initially define the relationships between parties on the network, but payments are executed within the smart contract transactions.

See also: How Insurance and Blockchain Fit  

The elimination of a time delay in payments acts as a stimulant for economies; tokens earned can immediately be spent, increasing the speed at which organizations will earn and spend. Traditional delays and fees that occur throughout accounting workflows and through intermediary banks that process payments can be eliminated.

Cross-border processing

Currently, global payments involving foreign exchange introduce complexities in addition to time delays. Economic indicators and political events dramatically affect the exchange rates and profitability of transactions. Cross-border payments require access to the required currencies by intermediary banks, which can cause additional delays beyond the internal accounting workflows.

With blockchain technology, using a token-enabled economic layer simplifies the payments to support micropayment efficiencies. Participants on the blockchain network will be able to efficiently use the preferred fiat currencies to acquire or sell tokens without using intermediaries, banks or currencies.

Merging blockchain and data

Today, there are more connected IoT devices than there are people on the planet, and the data generated is growing at an exponential rate. Various sources have predicted that the number of connected devices will grow to more than 70 billion by 2025; the numbers are almost irrelevant.

IoT devices are used in homes, transportation, communities, urban planning, environment, consumer packaged goods, services and soon in human bodies. A number of insurance companies use these devices to assess driver habits and usage. Autonomous cars and changing ownership and usage models are creating a generation of insurance products that can be facilitated through IoT-collected data. Home devices can detect leaks, theft and fire damage – capabilities that reduce risk. Shipping companies use the IoT for fuel and cargo management, which offers operating efficiencies, transparency and loss prevention.

Merging the mass of IoT data with the blockchain is not without challenges, but this combination can provide a completely new way of creating an insurance model that is far more efficient and faster, and where data flows directly from policyholders to the insurer.

Summary

Interest in the trinity of bitcoin, blockchain and distributed ledger technology has significant momentum. However, the technology is not magic or a panacea for every corporate woe. It has disadvantages and limitations, and there are situations where it would even be the wrong solution. There is enough about it, though, to merit continued closer investigation – the many emerging cases of its application bear testament to that – but in place of hype we still need answers.

The Opportunities in Blockchain

Blockchain and smart contracts have enabled the development of new approaches in the insurance industry, as they begin to replace outdated business models (with excessive paperwork, communication problems, multiple data operating systems and duplication of processes and the inability of syndicates to mine their data). By digitizing payments and assets—thus eliminating tedious paperwork—and facilitating the management of contracts, blockchain and smart contracts can help cut operational costs and improve efficiency. Smart contracts also allow for automation of insurance claims and other processes as well as privacy, security and transparency. It is estimated that roughly one-third of blockchain use cases are in the insurance industry.

How Blockchain Is Used in Insurance

How will blockchain and smart contracts transform the insurance industry?

  • Quick and efficient processing and verification of claims, automatic payments—all in a modular fashion, thus minimizing paperwork.
  • Transparency, minimizing fraud, secure and decentralized transactions, reliable tracking of asset provenance and improving the quality of data used in underwriting. Besides improving efficiency, this also reduces counterparty risks, ensuring trust and safety both from the insurer’s and customer’s perspective. By computing at a network, rather than individual, company level, the consumer is reassured that the process was completed appropriately and as agreed upon. From the perspective of the insurance company, this fosters trust, as well, and encourages consistency, as the blockchain provides transparent and permanent information about the transactions.

The insurance industry has traditionally been associated with tedious administration, paperwork and mistrust; the incorporation of blockchain, however, has the ability to transform this image by bringing operational efficiency, security, and transparency. The long-term strategic benefits of blockchain are thus clear.

Top insurance blockchain projects:

AIG (American International Group) – Smart contract insurance policies

HQ: New York

Description: AIG, in conjunction with IBM, has developed a “smart” insurance policy utilizing blockchain to manage complex international coverage.

Blockchain network: Bitcoin

Deployment: In June 2017, AIG and IBM announced the successful completion of their “smart contract” multinational policy pilot for Standard Chartered Bank. It is said to be the first such policy to employ the blockchain digital ledger technology.

Fidentiax – Marketplace for tradable insurance policies

HQ: Singapore

Description: As “the world’s first marketplace for tradable insurance policies,” Fidentiax hopes to establish a trading marketplace and repository of insurance policies for the masses through the use of blockchain technology.

Blockchain network: Ethereum

Deployment: Fidentiax succeeded in raising funds for the project through its Crowd Token Contribution (CTC, aka ICO) in December 2017.

See also: How Insurance and Blockchain Fit  

Swiss Re – Smart contract management system

HQ: Zurich, Switzerland

Description: Swiss Re, a leading wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer, has partnered with 15 of Europe’s largest insurers and reinsurers (Achmea, Aegon, Ageas, Allianz, Generali, Hannover Re, Liberty Mutual, Munich Re, RGA, SCOR, Sompo Japan Nipponkoa Insurance, Tokio Marine Holdings, XL Catlin and the Zurich Insurance Group) to incorporate and evaluate the use of blockchain technology in the insurance industry. The Blockchain Insurance Industry Initiative (B3i) hopes to educate insurers and reinsurers on the employment of the blockchain technology in the insurance market. It serves as a platform for blockchain knowledge exchange and offers access to research and information on use case experiments. As of yet, there have only been individual company use cases in the industry. B3i is working to facilitate the widespread adoption of blockchain across the entire insurance value chain by evaluating its implementation as a viable tool for the industry in general and customers in particular. The initiative envisions efficient and modern management of insurance transactions with common standards and practices. To this end, it has developed a smart contract management system to explore the potential of distributed ledger technologies as a way to improve services to clients by making them faster, more convenient and secure.

Blockchain network: Ethereum

Deployment: B3i was launched in in October 2016. On Sept. 7, 2017, B3i presented a fully functional beta version of its blockchain-run joint distributed ledger for reinsurance transactions. On March 23, 2018, the B3i Initiative incorporated B3i Services company to continue to promote the B3i Initiative’s goal of transforming the insurance industry through blockchain technology.

Sofocle – Automating claim settlement

HQ: Northern Ireland, U.K.

Description: Through smart contracts, AI and mobile apps, Sofocle employs blockchain technology to automate insurance processes. All relevant documents can be uploaded by customers via mobile app, thus minimizing paperwork. Use of smart contracts allows for a far more efficient and faster settlement process. Claims agents can verify insurance claims, which are recorded on the blockchain in real time. The smart contracts allow for verification of a predetermined condition by an external data source (trigger), following which the customer automatically receives the claims payment.

Blockchain network: Bitcoin

Dynamis – P2P Insurance

HQ: U.K.

Description: Dynamis’ Ethereum-based platform provides peer-to-peer (P2P) supplementary unemployment insurance, using the LinkedIn social network as a reputation system. When applying for a policy, the applicant’s identity and employment status is verified through LinkedIn. Claimants are also able to validate that they are seeking employment through their LinkedIn connections. Participants can acquire new policies or open new claims by exercising their social capital within their social network.

Blockchain Network: Ethereum and Bitcoin

Deployment: The goal of Dynamis is the creation of a decentralized autonomous organization (DAO) to restore trust and transparency in the insurance industry. Its community-based unemployment insurance employs smart contracts and runs on the Ethereum blockchain platform. Using social networking data and validation points, Dynamis verifies a claimant’s employment status among peers and colleagues. It also depends on Bitcoin-powered smart contracts to automate claims.

Conclusion

Recognizing the benefits of blockchain and smart contracts, the insurance industry has begun to explore their potential. With the traditional insurance model, validating an insurer’s claim is a lengthy, complicated process. Blockchain has the ability to combine various resources into smart contract validation. It also offers transparency, allowing the customer to play an active role in the process and to see what is being validated. This fosters trust between the insurer and the customer. Despite the obvious benefits of blockchain for insurers, reinsurers and customers, the industry has yet to adopt blockchain on a large scale. The primary reason for this is that blockchain adoption has until now required in-depth knowledge and skills in blockchain-specific programming languages. The limited number and high cost of hiring blockchain experts have rendered the technology out of reach for many businesses in the industry. Without access to the technology, exposure to blockchain and the ability to reap its benefits will remain limited for insurance companies.

How can these obstacles be overcome? The key is accessibility to enable all parties within the insurance ecosystem to reap the benefits of blockchain and smart contracts. There is a dire need for a bridge between the blockchain technology and these industry players. This is the role that the iOlite platform fulfills. iOlite provides mainstream businesses with easy access to blockchain technology. iOlite is integrated via an IDE (integrated development environment) plugin, maintaining a familiar environment for programmers and providing untrained users simple tools to work with. The iOlite platform thus enables any business to integrate blockchain into its workflow to write smart contracts and design blockchain applications using natural language.

How it works? iOlite’s open-source platform translates any natural language into smart contract code available for execution on any blockchain. The solution utilizes CI (collective intelligence), in essence a crowdsourcing of coder expertise, which is aggregated into a knowledge database, i.e. iOlite Blockchain. This knowledge is then used by the iOlite NLP grammar engine (based on Stanford UC research), the Fast Adaptation Engine (FAE), to migrate input text into the target blockchain executable code.

See also: Blockchain – What Is It Good for?  

The future of blockchain in insurance

With a clear direction of blockchain adoption for the future, insurance companies will be forced to adapt or be left behind. The adoption of blockchain by the insurance industry is no longer a question of if but how.

Gradually and Then Suddenly…

Excerpted from MSA’s Q1-2018 Outlook Report (June 2018)

The insurance industry has been compared to the proverbial frog in the pot of ever hotter water. While things appear on the surface comparable to what they were like 10 years ago, perhaps with some nuanced variations, there appears to be little in the way of differences. Yes, mergers continue happening at the carrier level, and direct insurers are slowly gaining market share, but the band plays on. Industry associations continue holding conventions, insurers, reinsurers and brokers continue their traditions and year-end pilgrimages to London, Monte Carlo, Baden-Baden, NICC and the Aon Rendezvous, and the various other stations still welcome a familiar crowd. But signs that fundamental changes are afoot are becoming ever harder to ignore.

In Ernest Hemingway’s 1926 novel, “The Sun Also Rises,” there’s a snippet of dialogue that seems apropos:

How did you go bankrupt?” Bill asked.

“Two ways,” Mike said. “Gradually and then suddenly.”

The primary driver of the change is technology. The less noticeable catalyst, but no less important, is changes in regulatory mindsets. Let’s tackle both.

The two most influential market conduct regulators in Canada are readying themselves for technological disruption of the industries they oversee.

Quebec’s regulator, the AMF, has publicly expressed that it is “open for business” in terms of insurtech/ fintech under CEO Louis Morisset and Superintendent of Solvency Patrick Déry.

FSCO has recently moved to be more flexible within the tight bounds of its mandate, and its successor, FSRA, will be a modern independent agency purposely built for adaptability; it emerges from its cocoon under the guidance of a professional board and the stewardship of its CEO, Mark White, in April 2019.

FSRA and the AMF are positioning themselves to allow experimentation via regulatory sandboxes, whereby players can test initiatives in the field. This sandbox methodology is modeled after the Ontario Security Commission’s LaunchPad initiative.

See also: Global Trend Map No. 19: N. America (Part 1)  

You may not have noticed it, but the regulatory ground in two of Canada’s largest provinces has shifted, and the stage is being set for ever-faster innovation in the Canadian insurtech space. In fact, in conversations with Guy Fraker, chief innovation officer at California-based Insurance Thought Leadership and emcee for the InsurTech North Conference in Gatineau in October, he advises that Canada is being looked at as a regulatory innovation hub by the global insurtech community.

Even under the old FSCO regime, Canada’s largest insurer, Intact, pulled off what might be a master stroke in July 2016 when it issued a fleet policy to Uber, providing coverage to tens of thousands of Uber drivers when engaged in Uber activities. So, in one fell swoop, a single insurer swept up tens of thousands of drivers. Intact pulled another coup by partnering with Turo in Canada. Turo is a peer-to-peer car-sharing marketplace that is busy disrupting the sleepy and sloppy car rental industry. This again gives Intact access to thousands of drivers with the stroke of a pen. Further, Intact may be able to leverage the access it has to those drivers to provide full auto coverage and even residential coverages. When these risks are gone, they’re lost to the rest of the market. Striking deals with the likes of Uber and Turo changes the game. In the U.S., Turo partners with Liberty Mutual, and with Allianz in Germany. Uber partners with Allstate, Farmers, James River and Progressive in the U.S. Aviva has pulled off a similar deal in Canada with Uber’s nemesis, Lyft.

Further afield, B3i, the industry blockchain initiative has been established with the support of 15 large insurers/reinsurers. It is just starting up, but its mission is to remove friction from insurer/reinsurer transactions and risk transfer. When friction goes, so will costs. It is starting out slowly, but things may change suddenly – reshaping whole segments of the market. In addition to the original 15, the initiative has been joined by 23 industry testers.

In the U.S., The Institutes (the educational body behind the CPCU designation) launched a similar blockchain consortium called RiskBlock, which currently counts 18 members:

  • American Agricultural Insurance
  • American Family Insurance
  • Chubb
  • Erie Insurance
  • Farmers Insurance
  • The Hanover Insurance Group
  • Horace Mann Educators
  • Liberty Mutual Insurance
  • Marsh
  • Munich Reinsurance America
  • Nationwide Insurance
  • Ohio Mutual Insurance Group
  • Penn National Insurance
  • RCM&D
  • RenaissanceRe
  • State Automobile Mutual Insurance
  • United Educators
  • USAA

There is talk of establishing a Canadian insurance blockchain consortium, as well. You can hear from leaders of B3i, RiskBlock and parties involved in the Canadian initiative at the NICC in October.

Even further afield, if one was to look for an industry that makes the insurance sector look futuristic, one need not look further than the global supply chain shipping industry, with antiquated bills of lading, layers of intermediation and massive administrative overheads. Well, that industry is getting a serious wakeup call thanks to determination and drive of the world’s largest shipping company, Maersk. The company is taking its industry by the scruff of the neck and pulling it into the future whether it likes it or not – long-standing tradition, relationships and methods notwithstanding.

First, in March 2017, Maersk teamed up with IBM to utilize blockchain technology for cross-border supply chain management. Using blockchain to work with a network of shippers, freight forwarders, ocean carriers, ports and customs authorities, the intent is to digitize (read automate/disintermediate) global trade.

More recently (May 28, 2018) and closer to home, Maersk announced that it has deployed the first blockchain platform for marine insurance called insurwave in a joint venture between Guardtime, a software security provider, and EY. The platform is being used by Willis Towers Watson, MS Amlin and XL Catlin (got your attention?). Microsoft Azure is providing the blockchain technology using ACORD standards. Inefficiencies, beware! Microsoft and Guardtime intend to extend insurwave to the global logistics, marine cargo, energy and aviation sectors.

See also: How Insurance and Blockchain Fit  

Insurers that find themselves locked out of these types of large-scale initiatives will be left out in the cold.

We’re witnessing “SUDDENLY,” and we’d better get used to it.

Blockchain Transforms Customer Experience

Bitcoin’s unprecedented 2017 surge dominated the year-end financial news and introduced its revolutionary supporting technology into mainstream finance and technology discussions around the world. For many, this recent news cycle was their introduction to blockchain, the distributed ledger technology that enables the existence of cryptocurrencies; essentially, blockchain is a digitized, decentralized public record of transactions stored across a peer-to-peer network–a distributed database that maintains a continuously updated record of ownership and value.

I’ll be honest, I didn’t get it at first–not in the sense that I didn’t think it would have a profound impact on the way we live, work and exchange value with each other globally; I mean I fundamentally did not understand it. Over the past two years, I’ve read a lot of definitions about what blockchain is and isn’t, my favorite coming from Steve Nutall via Fifth Quadrant’s CX Spotlight:

Think of this digital ledger like a Google Doc. The traditional model of collaborating on a document was to use the “track changes” feature. You’d send me something; I’d open it, modify it, save it and send back to you. But on Google Docs, we can work on the same doc simultaneously, with each change being recorded instantly. Similarly, on the blockchain, we simultaneously see and update the ledger, of which – despite being distributed among many people – only a single version exists. Via this global, shared and trusted network, we can transfer and validate data, value, documents at scale without lengthy processing times, expensive processing fees or intermediaries. The benefits of this digital ledger technology are trust, transparency, speed and efficiency.

See also: Insurtech in 2018: Beyond Blockchain  

So what? I don’t have Bitcoin. While blockchain was invented to enable the best-known and most valuable cryptocurrency, most believe that blockchain’s potential use far outpaces Bitcoin itself, or any other cryptocurrency. Aegon, Allianz, Munich Re, Swiss Re and Zurich have launched the Blockchain Insurance Industry Initiative, B3i, which aims to explore the potential of distributed ledger technologies. The Institutes have established the RiskBlock industry consortium. Many other carriers and insurtech startups are following suit with their own explorations of how blockchain can transform their businesses.

Among insurers, there is a belief that underwriting and claims processing are the strongest immediate applications. But blockchain will also have a significant impact on customer experience in insurance.

Security and Privacy

Insurance customer data has always been a high-value target for hackers, as it combines personal financial and health data. Insurance providers have sought to prevent data vulnerabilities with strict security-compliance measures, though outpacing the threat of cyber criminals is a difficult race of constant vigilance. Committing budget and human capital to staying on the forefront of cyber security trends is crucial to securing customer data, and, along with these efforts, the blockchain’s inherent structure can further protect the security and privacy of insured parties.

A central component of blockchain technology is private key encryption, which for this article we will broadly reference as cryptography. Cryptography is used to create a secure digital identity reference between customer and carrier. Additionally, blockchain-based security is predicated on distributing the evidence among many parties, which makes it impossible to manipulate data without being detected.

The combination of private key encryption and decentralized storage enables increased security and protection of data and identity, further reducing the barriers along the complete customer journey.

Trust and Transparency

As we’ve discussed elsewhere, trust is a major barrier to online insurance purchases. A full 80% of people do NOT believe online insurance quotes are accurate. Running Comprehensive Loss Underwriting Exchange (CLUE) reports can be expensive for carriers, and, without them, customer and carrier are often working with incomplete or inaccurate information that undermines the integrity of their quote. Without knowing how information is being used or why it’s being requested, customers lose trust quickly, and they need to speak with an agent to complete their transaction. The free flow of information enabled by the blockchain and its cryptography will engender a higher degree of trust and transparency on both sides, with clear benefits to both customers and carriers. Equipped with accurate customer data, carriers will be able to provide customers with far more accurate quotes that will in turn create more trust with their customer and eventually enable more customer self service. Once customers start trusting online quotes, they will soon stop picking up the phone to complete their transactions with an agent.

We’ve also learned from our research that the more transparent insurance carriers are about why and how they will be using customer data, the more comfortable customers are sharing their data and completing transactions online. Because blockchain can eliminate the need for third parties to validate data, it can facilitate more direct communication between customer and carrier throughout the quoting process, giving insurers more opportunities for transparency. If an entire claims transaction, including payment, is supported on a carrier’s blockchain, financial intermediaries are removed and the carrier has complete control over the customer relationship.

On the carrier side, blockchain will lead to a reduction in insurance fraud. When blocks are built, the data shared is immutable, reducing fraud and the need for third-party intermediaries. As reported by Bernard Marr in Forbes, an estimated 5% to 10% of all insurance claims are fraudulent. An insurer’s ability to record transactions on a blockchain throughout a policy’s lifecycle, from quoting and binding to claims and other servicing, enables an immutable and auditable record of activity. By maintaining the integrity of any transaction’s history, blockchain technology can minimize counterfeiting, double booking and document or contract alterations.

See also: Collaborating for a Better Blockchain  

While fraud reduction provides an obvious benefit to carriers, it also benefits customers, who, without insurance carriers having to account for potential fraud in their pricing, can expect to save on insurance premiums.

Speed and Efficiency

The second half of improving quotes and claims processing lies in speed and efficiency. With current claims processing bogged down by an inefficient exchange of information, the excessive use of middlemen, fragmented data sources and an overly manual process for review and processing, the blockchain promises a streamlined capability for reducing the overhead and risk of claims processing, dramatically improving its overall speed. The blockchain does this through the use of smart contracts. Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. Smart contracts allow trackable and irreversible transactions without a third party. Smart contracts can communicate with other smart contracts, creating a chain of efficiencies whose resolution time is extremely fast–converting paper-based processes that may have taken weeks or months to a matter of seconds. Mark Bloom, global CTO at Aegon, outlined one such use case tackled by the aforementioned B3i blockchain coalition in CIO Applications:

As the first project, the group decided to focus on reinsurance as that part of the insurance value chain is currently dominated by paper contracts…in the current situation, the focus is on a paper document that is then translated to digital metrics that are entered into a computer system. Distributed ledger technologies such as blockchain allow us to start with the key metrics in a digital shared ledger and turn that into a legal document…This greatly reduces the work, associate risks and needs for further manual reconciliations. These digital contracts are smart because they contain operational logic and to some extent can execute themselves, which further increases efficiency and reduces operational risk…In terms of time, it could mean that the processing of all relevant data as premium and/or claims payments between insurer and reinsurer can be a matter of seconds instead of the months that the traditional paper process can take.

Furthermore, smart contracts can automate the process of engaging repair and assistance providers (such as towing or autobody professionals) to fulfill claims, enable an automatic protocol for human consultation for complex and unique risks and provide automatic payment and an immutable, transparent proof of claim settlement.

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We are only now beginning to see insurers invest in and adopt blockchain technology, and in this article we’ve only touched on a few of the many transformative possibilities for improving the industry’s customer experience. I personally believe the blockchain will revolutionize the way customers interact with all financial and federal institutions in ways we haven’t yet contemplated–to the same extent that we’ve seen the global adoption of the internet fundamentally change the way we interact with each other. I would recommend that every carrier deeply investigate the promising possibilities of building with the blockchain and leverage the power of this disruptor to improve their products and services and the way they do business as a whole.

The original article appeared here.