This article was originally published in the Winter 2018 issue of The Record. Subscribe for FREE here to get the next issue delivered directly to your inbox.
By now, you’ve probably heard all about blockchain’s potential to solve inefficiencies in insurance. You might even be experimenting with this technology within your own innovation incubator, through partnerships with tech start-ups or collaborations with industry initiatives such as B3i and the RiskBlock Alliance.
While it still has a way to go to achieve industry-wide adoption, its potential to drive change can’t be ignored. So, once blockchain rolls out, how will it be used, and what specific operational, analytic and ultimately business defining threats might it bring. And when?
In the short to mid-term, blockchain will improve speed, transparency and cost-efficiency through self-executing smart contracts that have three core elements: frequency to test conditions; a set of conditions; and an action that gets triggered by those conditions. This is particularly relevant in the shorter-term for parametric insurance products.
Thanks to their ability to provide a public ledger across multiple untrusted parties, blockchains can also reduce human error and the costs and delays associated with verification processes. They also support the synchronisation and reconciliation of multiple databases among the various players in a market or value chain, helping, amongst other things, to reduce the risk/incidence of duplicate transactions and those involving suspicious parties. These attributes are likely to have a big impact in the battle against fraud where distributed ledgers using blockchains can be more effective than existing technologies due to their shared and distributed nature and the mechanisms to self-regulate.
In the medium- to long-term, while blockchain will not reinvent the way insurance is done, it can enable the transparency and scalability of new business models like peer-to-peer (P2P) insurance, since it provides a framework for self-regulating organisations among non-trusted partners. Meanwhile, blockchain can add an additional feature to near real-time adaptive pricing, on-demand insurance and hybrid insurance products, making sure that these new sources of data are stored in a distributed ledger that’s neither owned by insurers nor insureds, and cannot be corrupted nor manipulated. Blockchain-enabled prediction markets like Augur, could become an additional source of actuarial data.
Ultimately, the degree to which blockchain becomes mainstream in insurance, and the speed with which this happens, will depend on less headline-grabbing details such as defining accepted standards, product targeting, the insurability of a blockchain and regulatory approaches.
Magda Ramada Sarasola is a senior economist at Willis Towers Watson
Share this story