Is blockchain technology the next big disruptor in the insurance industry?
Following the addition of 10 new organizations, an industry-wide coalition that aims to incorporate blockchain technology into the insurance industry has grown to 15 members.
Founded in October 2016 by its five original members — Aegon, Allianz, Munich Re, Swiss Re, and Zurich — the Blockchain Insurance Industry Initiative B3i now includes Achmea, Ageas, Generali, Hannover Re, Liberty Mutual, RGA, SCOR, Sompo Japan Nipponkoa Insurance, Tokio Marine Holdings, and XL Catlin.
But why are these nominal rivals banding together to explore the use of this digitally distributed platform? Because they view this groundbreaking technology as a vehicle to make the insurance and reinsurance industry more efficient, for one. But there may be other yet-unforeseen benefits for consumers and agents as well.
What is Blockchain?
In a blockchain, all data input into a transaction (such as an insurance contract) remains on a decentralized digital ledger linked to a far-flung computer network. Using cryptography and algorithms, the blockchain verifies users entering the database and validates the proposed transaction. Since documents collected on the blockchain are not stored in one central computer, the data is said to be less vulnerable to hacking.
Blockchains can be configured in two ways: In a “permissionless” structure, anyone can log onto the ledger, while “permissioned” blockchains only allow verified users.
The open-yet-secure ledger yielded by blockchain means that documents can be easily updated and shared in real-time, and it’s this attribute that insurers see as beneficial. After announcing its participation in the B3i intiative, Munich Re stated that blockchain affords insurers the ability to share and execute digital contracts and transactions between multiple parties in a secure environment that reduces the administrative workload and promotes consistency.
“Blockchain technology has the potential to optimize business processes and value chains in the insurance industry,” said Head of IT Operations at Hannover Re Gerhard Ebeling in an Insurance Journal article.
One of the B3i participants has actually already tested blockchain technology. Last fall, SCOR evaluated a technical accounting blockchain “proof of concept” platform and found it could be implemented quickly, sped up interactions between partners, and had the potential to reduce costs.
Swiss Re echoed those assessments when it announced its affiliation with B3i. “If Blockchain technology proves viable, it could well streamline paperwork and reconciliations for reinsurance and insurance contracts and accelerate information and money flows, while greatly improving auditability,” the insurer said in a statement.
The Future of Blockchain in the Insurance Industry
In order for widespread adoption to occur, the insurance industry must devise a common set of standards and procedures. But as Kevin Wang and Ali Safavi of Plug and Play Insurance pointed out in a recent TechCrunch article, such a transformation could entail an entire reset of underwriting procedures and risk underwriting methods.
Blockchain expert Nick Ayton (writing in CoinTelegraph.com) agreed that the technology has the potential to completely alter the insurance industry for the better, but only if the big insurers “play nicely” and allow smaller participants into the marketplace. He further questioned whether large insurers would keep blockchain only to themselves and thereby cut out brokers and clients.
Nevertheless, B3i was launched to explore just those issues, with an initial report slated for release by June 2017. The initiative also happens at a time when the insurance industry is undergoing an insurtech revolution that’s not only changing how insurers do business, but also the nature of the relationship between agents and clients.
Innovations that could stand to gain from the integration of blockchain technology include peer-to-peer insurance, microinsurance, and parametric insurance, which pays a predetermined amount when a catastrophic event occurs instead of indemnifying the entire loss.
All those operations depend on an efficient exchange of accurate and timely information so that claims can be processed and paid quickly. With blockchain, the insurance industry can speed up the flow of that data, which may spell good news for carriers, agents, brokers, and clients alike.