Tag Archives: riskblock

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.

How Insurance Can Exploit Blockchain

As the insurance industry races to adopt new technologies and stay one step ahead of the insurtech disruptors, blockchain has become a widely discussed topic. With use cases in fraud protection, risk management, claim processing and smart contracts, blockchain has a promising future with benefits for both independent agents and carriers. Although adoption is still in its initial inception, interesting pilot use cases are popping up across the industry.

Blockchain’s greatest value lies in its distributed ledger technology, which acts as a uniform source of truth. This technology is very hard to hack and provides a wealth of benefits to every member of the insurance distribution channel. Let’s take a look at some of the ways blockchain is being used in insurance today.

Smart Contracts

In my experience and research, the most commonly discussed use case of blockchain lies in the execution of smart contracts. For those unfamiliar with the concept, blockchain’s distributed ledger allows one computer to register an outgoing transaction and then enables a peer group of computers to validate and accept the transaction through a consensus-driven approach. This means that copies of the transactions are now stored in a distributed fashion across the network, and hacking or altering this information will require more than 50% of the computers in the network to be compromised simultaneously. This ensures that the source of truth is preserved and protected in a robust fashion and can be accessed by any legitimate party with the right permission levels.

While the execution of smart contracts in travel insurance has already made a splash – see AXA or FlightDelay or Lemonade – there remain other use cases that are sure to make a large impact. One example is flood insurance. In areas prone to heavy rainfall and flash floods, insurers can use regional geological data to automatically trigger insurance claims. Meaning, once flood waters reach a predetermined level, a smart contract trigger will spontaneously file a claim for the insured. Another application with a similar process is earthquake insurance. If an earthquake were to occur above a certain magnitude, the smart contract would initiate the insured’s claim based on regional geological data and preset factors in the contract.

See also: Collaborating for a Better Blockchain  

I also see blockchain expanding into the auto insurance space through the use of telematics devices. These devices are already able to track data in terms of wear and tear, collisions and driving patterns. Such data can be used to calculate insurance premiums that are more targeted and personalized. In a broader sense, IoT-based sensor data can power the metered insurance space in the shared economy (Uberization).

For both the insurer and the insured, the smart contracts built on the blockchain will drive more efficiency across the insurance value chain. A key factor in the expansion and adoption of smart contracts in the insurance industry is data. Smart contracts are only viable if there are external sources of data that are validated and reliable. The more data that is universally shared and available, the more innovative insurance products will be adopted.

Fraud Protection and Proof of Insurance

The FBI estimates the U.S. government spends more than $40 billion per year on insurance fraud, leading to my next, and possibly most compelling, application of blockchain. With an aggregated repository of data that is validated and maintained by carriers, agents and government entities, it becomes easy to track down insurance fraud spanning multiple carriers. IBM has already announced a new framework for securely operating blockchain networks to directly fight insurance fraud, and I expect more companies to follow suit.

In addition to fraud protection, blockchain technology is powering another compliance innovation: proof of insurance. In December 2017, a consortium of insurance leaders dubbed the RiskBlock Alliance launched RiskBlock, a proof-of-insurance tool built on the blockchain framework. It was designed to help insurers, insureds and law enforcement simplify how they verify insurance coverage in real time, eliminating the need for paper-based insurance cards. Nationwide is already in the pilot stage with RiskBlock and hopes to expand the program this year.

Insurance Distribution Model

Despite new insurtech entrants disrupting the industry every day, innovations such as blockchain ensure that the insurance agent will always remain the cornerstone of the insurance distribution model. As reported in the examples above, the common theme among the benefits of blockchain’s distributed ledger technology — the ability to automatically file claims, process data and inform policies — drives efficiency and visibility into the entire insurance ecosystem. For carriers, a uniform and validated data source allows transparency into risk assessment, underwriting and a channel to reach the end-insured directly. With automated processes executed through blockchain, brokers are able to focus on building relationships, expanding their offerings and solidifying their role in the distribution model. Similarly, customers benefit from personalized and increased touch points, leading to better tailored insurance policies and cost efficiencies. As these relationships grow, so does the velocity of business…it’s a win-win for all the constituents in the value chain.

See also: Blockchain: What’s the Real Story?  

We are only just beginning to see the potential of blockchain technology in insurance. With blockchain and insurtech startups, coalitions such as RiskBlock Alliance and major carriers leading the charge, the insurance industry is poised for an imminent digital revolution.

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.


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.