It’s been more than a year since we posted our intro to blockchain and distributed ledger technology (DLT). In noting last week’s announcement by London investment bank HSBC Holdings that it planned to move $20 billion in assets to blockchain technology, we thought it might be a good time to revisit the topic and look at recent insurance developments.
But first, let’s have a mini refresher of what blockchain is. In the link above, we offered some introductory resources, but we point you to the helpful tutorial, What is Blockchain Technology? A Step-by-Step Guide For Beginners from Blockgeeks, which offers this simple explanation:
“Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the blockchain.”
For a bit more detail:
A blockchain is, in the simplest of terms, a time-stamped series of immutable records of data that is managed by a cluster of computers not owned by any single entity. Each of these blocks of data (i.e. block) is secured and bound to each other using cryptographic principles (i.e. chain).
So, what is so special about it and why are we saying that it has industry-disrupting capabilities?
The blockchain network has no central authority — it is the very definition of a democratized system. Since it is a shared and immutable ledger, the information in it is open for anyone and everyone to see. Hence, anything that is built on the blockchain is by its very nature transparent and everyone involved is accountable for their actions.
You can learn more, but it might start making more sense when looking at ways this technology is being used or in the planning stages for our industry. Previously, we talked about real-world applications for blockchain and insurance. The technology holds great promise for adding speed and efficiency to underwriting and claims processing and reinsurance. It is also envisioned as aiding in fraud detection and prevention. It will enable more efficient and accurate applications such as smart contracts, first notice of loss and proof of insurance.
Recently, in Business Insurance, Mark Lerner reported on a panel of speakers at the Risk & Insurance Management Society Inc.’s Risktech Forum who talked about the inroads that blockchain is making in insurance. He notes
“Blockchain’s development and adoption by the insurance industry is being aided by a few industry groups including Malvern, Pennsylvania-based The Institutes, which is working on use cases for reinsurance placement and personal auto, according to Brendan Picha, head of products for The Institutes RiskStream Collaborative.
The proof of insurance and first notice of loss application in personal auto could be expanded downstream, and ultimately the group could look to develop a commercial first notice, he said.”
Jenna Tropea of Bankrate talks about some of the regulatory and legal hurdles that blockchain faces in the insurance industry, but notes that the blockchain opportunities in the insurance sector are many. Related to property & casualty insurance, she says:
Property and casualty insurance consists primarily of auto, commercial and home insurance. Net premiums written for this sector totaled $558.2 billion in 2017. Processing claims requires significant manual entry, which leaves room for human error. Blockchain technology could make claims processes three times faster and five times cheaper using blockchain technology. By using shared ledgers and smart contracts (software that checks for certain transactions in the network and automatically executes actions based on pre-specified conditions being met) to issue insurance policies, the claims and payment processes can be automated to create more efficiency and accuracy. Smart contracts have the ability to turn paper contracts into programmable code that helps automate claims processing.
A few recent applications include:
- A FEMA report recommended that “blockchain technology and parametric insurance should be included in the Federal Emergency Management Agency’s toolbox as it strives to close the nation’s flood insurance coverage gap.” Blockchain is envisioned for a land and property registry stored off site in a secure platform.
- B3i recently announced the launch of its first product. Version one of its Property Catastrophe Excess of Loss Reinsurance (CAT XL) product is live on the Corda Network.
As the technology develops, keep these two key industry players on your radar:
- The Institutes RiskStream Collaborative – describes itself as an industry-led consortium collaborating to unlock the potential of blockchain across the insurance industry… accelerating time to market and adoption through real-world applications and impactful blockchain use cases.
- B3i Services AG – dedicated to “Better insurance enabled by frictionless risk transfer.” B3i Services AG was incorporated in 2018 and is 100% owned by 18 insurance market participants around the world. Altogether, more than 40 companies are involved in B3i as shareholders, customers, and community members.
Follow more developments related to blockchain:
- Ledger Resources. Here’s the news that focuses specifically on insurance
- Insurance CIO Outlook – blockchain
- The Block
- KPMG – Blockchain
Keeping pace with the changing technology landscape in our industry can be daunting. The experts at Renaissance Alliance are dedicated to demystifying technology and bringing practical, simplified solutions to our agency members to help them grow. As blockchain makes inroads, we are closely monitoring its potential to help agents earn more profit and better serve their customers. Click here to learn more about membership.