Tag Archives: blockchain

Blockchain: The Next Big Thing

If you’ve been paying attention to the technology landscape, you’ve heard of blockchain. The inherent capabilities of this distributed ledger technology are vast, in its ability to efficiently, transparently and securely transmit information. As a neutral, not-for-profit advisory organization and statistical agent, AAIS needs access to key data with which to create loss costs and other insurance products and solutions for our member carriers. This is what led to the use of blockchain technology to develop our Open Insurance Data Link (openIDL) platform. 

The Data Access Problem

As an advisory agency, our goal to create innovative products and inform better public policy starts and finishes with the data we can access. The obstacle to leveraging data is that it is often “locked” in proprietary silos and legacy systems that carriers are powerless to access efficiently. Additionally, companies like AAIS need more granular data that companies were not willing to share, concerned they might jeopardize market position. We often found that regulators encountered similar obstacles when asking for data to inform public policy. 

The Birth of openIDL

During the exploration of a solution to data sharing in the insurance industry, it became clear to us that our industry needed an external data strategy that could remove existing barriers. Companies need to be able to assert control, support privacy of their data and allow enough transparency to others, including regulators and innovators, to improve the insurance data ecosystem. As with any ecosystem, change would need to be introduced with balanced and deliberate decisions around the use of data. It was apparent that blockchain/distributed ledger could be the conduit to support change.

With the help of stakeholders across the insurance community, AAIS set out to develop a technology platform that would fulfill data requirements for insurers while retaining the privacy of their data and providing regulators with the transparency and insights they need, when they need them. Together with IBM, AAIS built openIDL on Hyperledger fabric because of its commitment to open source as the best way to equitably bring change to industry. It was the first step toward ensuring that openIDL could not be owned by any one organization and used as a proprietary weapon within the industry. We sought freedom from that kind of control. openIDL would be an industry solution.

Understanding the need to apply governance principles to our open-source community led us to work with the Linux Foundation, one of the largest open-source consortiums in the world. AAIS came to realize that donating the openIDL technology to the open-source community at Linux would increase adoption of the platform across the industry and across the broader insurance ecosystem. So, on April 12, 2021, openIDL became a Linux Foundation project.

See also: Blockchain Smooths Subrogation

COVID-19 Data Call…The First Use Case

The first use case for openIDL focused on regulatory reporting because basic claims and policy data from statistical reporting and data call (Figure I) activities are core data elements needed throughout the insurance ecosystem. It was also important to include the regulatory community in this development because any real change would need to be fully understood and accepted by regulators to penetrate the entire ecosystem. 

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Figure 1 Courtesy of AAIS

An openIDL Pilot

By the time the pandemic hit in early 2020, the openIDL platform was ready for a test run in support of a COVID-19 business interruption (BI) data call, with nine state regulators and two large carriers agreeing to participate in a proof of concept (POC) using openIDL. The POC would replicate an earlier COVID-19 data call (Figure II) from the National Association of Insurance Commissioners (NAIC), using the capabilities of blockchain as applied to regulatory reporting.  

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Figure II Courtesy of AAIS

The Results: Success 

The openIDL POC yielded tangible successes. Not only was openIDL able to recreate the earlier COVID-19 BI data call, but new value was derived by introducing third-party data from the Federal Payroll Protection Loan database. Newfound insights were uncovered without the carriers’ private address level data ever leaving their control and possession. The utility of blockchain’s immutable ledger could be used to gain accountability and access to insights that we have never seen before, while dramatically improving the output and process of insurance regulatory reporting for both insurers and regulators. 

During the pilot, openIDL exhibited several advantages over traditional methods of regulatory compliance. Among them: 

  • insurers could deliver far timelier data, more efficiently and potentially instantaneously once their dedicated openIDL “node” was populated 
  • insurer data could be leveraged by regulators, while remaining private, secure and in full control of participating carriers
  • insurer information could be correlated with data from other sources to reveal deeper, previously unattainable insights 

Ultimately, the ability to share insights while maintaining the privacy and security of data for all openIDL participants is a game-changer, ushering in a new era of quality underwriting capabilities, new product and service development and increased value to policyholders.

Next Steps

With openIDL now a Linux Foundation Project, AAIS and the Linux Foundation Regulatory Reporting Steering Committee will continue to work with regulators, insurers and other stakeholders to expand and evolve openIDL as the next-generation standard for statutory and periodic reporting, and perhaps the foundation for broader applications across the insurance ecosystem. Participation by stakeholders across the industry is welcomed! 

See also: Breakthrough for Blockchain?

If you would like to learn more or participate in future proofs of concept, please contact Robin Westcott at robinw@aaisonline.com or Lori Dreaver Munn at lorim@aaisonline.com.

The Problem Every Engineer Must Solve

What single problem must all engineers solve? Hint: The answer is so simple, you can’t even see it.

The paradox of invisibility

A firefighter may be worth a million dollars per hour when there is a fire and her or she courageously saves lives and salvages property. The value of the firefighter is derived from the severity of the fire. On the other hand, a fire protection engineer can design a thousand buildings that will never burn. But, in the absence of the fire, the true economic value of the engineer cannot be measured.

This is the paradox of invisibility.

Much the same can be said of aircraft that do not crash, bridges that do not collapse and pandemics that do not spread.

What single problem must all engineers solve?

Answer: Engineers remove risk from complex systems. That’s it. This simple fact is true for every single engineer and may even serve as an adequate definition for “engineering” at large. Engineers increase human productivity by reducing the risk to human life and property when confronted with the natural constraints such as gravity, temperature, impact, etc. The value of engineering is literally immeasurable in the absence of the disaster. Hence, it’s a problem so simple you cannot even see it. 

But wait, risk can be measured! Insurance companies and financial institutions do it all the time. It turns out that engineers think along the same lines as all risk managers and may deliver solutions that integrate seamlessly into the same computational analysis.   

Engineers resolve risk in three ways

Engineers follow a similar thought pattern when addressing problems as the actuary in formulating insurance products. This is so natural that we often don’t recognize what they are doing it.

  1. Engineers invent ways to identify and define the existence of a peril.
  2. Engineers invent ways to reduce the probability that the peril will manifest. 
  3. Engineers invent ways to reduce the severity of consequences if the peril does happen.

Each of these actions is identifiable, verifiable and measurable. Each – separately or together — can increase the efficiency of existing insurance products and facilitate the creation of new or expanded insurance products. Engineers validate the data that insurance depends on. Once validated, the risk resolution may be duplicated endlessly for similar risk exposures and standardized at near zero marginal cost.

See also: A Quarantine Dispatch on the Insurtech Trio

The Innovation Bank

At the Innovation Bank, we are setting up a network platform that uses a combination of game mechanics, blockchain technology and actuarial math to decentralize the engineering and science professions. In the case of fire protection, the Innovation Bank would curate the validated claims of all fire protection engineers, which can be analyzed to estimate how much risk has been removed from the “fire economy.” This value can be represented as a cryptographic token (on a dedicated blockchain) that may be purchased by banks, insurance companies, municipalities, corporations and property owners to access the database to better understand their specific risk exposures. The value of the tokens compensates the engineers to perform more comprehensive fire safety surveys and mitigation strategies. This positive feedback loop eventually can reduce total risk to near zero.

The world is on fire

Fire is only one peril related to one engineering discipline. The reality that confronts civilization today includes multiple complex global systemic risks affecting nearly every facet of life on Earth. These include climate change, pandemics, political instability, grinding debt and wealth inequality. 

To untangle every contributing risk exposure and replace it with comprehensive solutions that do not break the bank, we hope to introduce a parallel financial system that hedges the one currently being stretched to the limits. A digital token that represents engineering and scientific risk mitigation would be mutually convertible with national currencies and therefore taxable and transparent to regulatory standards. The two currencies would hedge each other.

Conclusion

The insurance industry faces daunting challenges, including inflation risk, cyclical risk and a plethora of systemic risk exposures. Fortunately, the single problem that all engineers can solve is the reduction of risk – if that reduction can be measured. 

The Innovation Bank could be finished within a matter of months for mere Satoshis on the dollar. 

Please continue reading articles from the Ingenesist Project at https://ingenesist.com. Our juried paper published by the American Society of Professional Engineers may be found here: The Innovation Bank; Blockchain Technology and the Decentralization of the Engineering Professions. Also, please see our other publications at: Select Publications and Lectures.

Blockchain Smooths Subrogation

Subrogation is a relatively manual, time-consuming process often requiring physical checks to be mailed on a claim-by-claim basis between insurers. Sounds laborious, doesn’t it? That’s because it is.

In 2018 alone, the total amount of dollars demanded and issued through the subrogation process was over $9.6 billion for all insurance carriers, and multiple sources of data increase the potential for fraudulent claims. According to Claims Journal, up to 10% of claims costs for U.S. and Canadian insurers are attributed to fraudulent claims.

With so many disparate parties, including claimants, carriers, third-party adjusters (TPAs), law firms, recovery companies and regulatory entities, involved in the process, subrogation is in desperate need of innovation. Fortunately, emerging technologies are providing solutions.

In this post-COVID world, with reduced dependency on physical location, the digitization of insurance has caused a significant ripple effect for businesses in subrogation, including those involved in risk management and data protection.

The Proverbial Silver Bullet?

Blockchain, or distributed ledger technology (DLT), can help insurers drive more efficient processes, including use of new “smart” contract models. 

Smart contracts allow insurers to enforce agreements by storing business rules in programing code and have them execute automatically once the required terms are met. Smart contracts can significantly reduce the cost of “netting.” Netting is a process when two insurance companies give visibility into corresponding liability and recovery efforts. Today, this process can take days or weeks or months. With transparency provided by blockchain, the netting process can occur in real time. And, this is a huge cost and compliance savings for carriers, as well as for the entire ecosystem.  

Blockchain employs consensus management to manage risk pools, underwriting and claims payments. The contract is digitally signed on the blockchain, providing all parties a single version of the contract, eliminating the possibility for version mismatch or misinterpretation.

Security 

Due to the nature of DLT, blockchain can automate transactions and allow multiple organizations to share data securely. Data is stored on multiple machines, making it essentially “public.” In this scenario, it becomes incredibly difficult for a hacker to alter the content of the data because it would have to be done on every node simultaneously. 

Data is more secure because blockchain networks store data in a format that cannot be replicated or tampered with. Each block of information is also stamped with a unique alphanumeric hash key, which contains information about that block and all the ones that proceeded it. If one block is altered in any way, it will be immediately apparent by comparing it with others in the chain.

See also: Breakthrough for Blockchain?

Transparency 

Blockchain technology is providing new ways of carrying out data exchanges that are more secure and transparent than ever before. The ability to make these transactions without a central authority enables better serving customers by removing the bottlenecks and inefficiencies that come with outdated manual processes.

Having stakeholders house their data on a blockchain creates a shared source of truth, which would facilitate data-sharing, reduce costs and decrease the likelihood of errors. By creating a single source of truth, a blockchain solution would eliminate data redundancy, reduce the potential for errors and speed the process by eliminating the need for continual information requests. An automated blockchain payment solution would eliminate the need for reconciliations, improve audit quality and reduce the potential for payment fraud. 

In addition to claims processing, a blockchain payment solution can streamline operations, improve accuracy and reduce costs across the value chain in such areas as agent/broker commissions and incentives, premium receivables, premium refunds at cancellation and service provider/vendor payments.

Blockchain employs smart contracts and consensus management to manage risk pools, underwriting and claims payments. The contract would be digitally signed on the blockchain, thus providing all parties a single version of the contract, eliminating the possibility for version mismatch or misinterpretation. Blockchain provides immutability by design. And, each party owns their ledger and a record of unconsumed evidence. Decentralized transactions (with common access to a ledger that has a secure audit trail) provides an improved basis for non-repudiation, governance, fraud prevention, financial data and reporting.

The Future of Subrogation – Sponsored by Blockchain

Blockchain is poised to rewrite the rules of competition in the subrogation industry by streamlining operations, enabling data to be shared seamlessly with external stakeholders and disrupting traditional business models and intermediaries.

Breakthrough for Blockchain?

While the enormous potential for blockchain in insurance has been apparent for a while, I’ve been waiting to see a breakout application hit the real world. I think I saw one last week, albeit in a different industry.

An article on Quora reported that Amadeus, a global reservation system, has adopted a blockchain-based system for verifying health clearances, such as COVID-19 vaccination records, for travelers.

The system will have to adapt as the pandemic continues to unfold and, in particular, as policies on eligibility for travel evolve, so success is by no means guaranteed. But I think this rollout is one to watch, because it’s the first I’ve seen that aims at truly massive scale, of the sort that will need to occur in the insurance industry as blockchain tracks certificates of insurance, manages first notice of loss and so on.

Initially, the blockchain system, IBM’s Digital Health Pass, is being used by just six airlines: Air Europa, Air Corsica, French Bee, Air Caraibes, Air Canada and Norwegian Air Shuttle. But all 474 airlines in Amadeus can activate the capability, and the need is pressing — the Quora article opens with a description of travelers queued up at London’s Heathrow airport for as long as six hours in April while waiting for agents to make sense of the various COVID-19 health clearances.

“Imagine small cards, stamped documents, and digital apps in various languages and formats,” the article says. “The lack of standardization was a killer.”

With the blockchain system, travelers provide credentials that back-end technology authenticates against the requirements of each country and airline, recording all information in a secure ledger. When travelers approach agents at airports, they have a QR code emailed to them that is then scanned and validates their eligibility for travel. The process is simpler for travelers and far simpler for agents. The process is also adaptable. As travel restrictions change, the electronic systems can sort through all the complexity in the background and still give the agent a binary decision: authorized or not authorized.

The hope is that blockchain could extend well beyond the health pass and supplant much of the other paperwork, including physical passports, that comes with travel, especially across borders. But just having the health pass work at scale would, for me, be plenty of validation for the blockchain concept.

We know from our friends at the Riskstream Collaborative that applications such as for proof of insurance and for first notice of loss are in advanced stages of development. And once one use takes hold — even if it’s in the airline industry — I think the technology will mature and trust will increase, meaning that progress will happen rapidly from then on.

Cheers,

Paul

How Blockchain Can Disrupt Insurance

Blockchain innovation is gradually taking hold in the insurance sector in an unprecedented way. Insurance giants and startups worldwide are attempting to use blockchain-based solutions to deal with operational inefficiencies of the insurance industry.

While digitization and technology have always existed in the insurance sector, blockchain innovation has emerged as rocket fuel for transformative change. In fact, behavioral shifts induced by COVID-19 have unfurled a promising opportunity for the insurance industry to upskill and adopt digital technologies like blockchain.

Blockchain technology has a lot to offer to both insurers and their insureds in different segments, from claims management and fraud detection to reinsurance and peer-to-peer insurance. Acting as a digital hub for all corporate transactions and data streams, blockchain innovation can reduce a lot of paperwork that worsens the customer experience.

Meanwhile, the decentralized nature of blockchain technology allows customers to share data securely and on a confidential basis. This further enables insurers to offer customer-centric insurance products and efficient services that are more streamlined and deliver greater value to clients.

Although there is limitless potential of blockchain technology in the insurance sector, the widespread adoption requires insurers to overcome significant legal and regulatory hurdles.

See also: The Future of Blockchain Series Episode 3

Moreover, the limitations of this technology in terms of standardization, scalability and security need to be addressed by insurers before taking any concrete action.

All in all, the industry-wide implementation of blockchain requires facilitating collaboration between insurers and technology leaders and shaping an encouraging regulatory environment. It is also crucial for industry players to closely follow the breakthroughs in blockchain technology and evaluate where the most promising blockchain application areas exist.