Can you imagine your professional life without the Internet? Probably not, if you use e-mail or are reading this article on a mobile device. For nearly every industry, including insurance, the Internet’s impact has been profound. Now, the insurance industry is beginning to embrace the next big technology game-changer: blockchain.
Consider some facts about distributed ledger technology, popularly known as blockchain:
- Sixty percent of global financial retail services executives believe blockchain is the most significant tech development since the Internet, according to a study by Marketforce.
- Worldwide, property and casualty insurers using blockchain could reduce their combined ratios by five to 13 percentage points and add up to $200 billion to their technical margin, a Boston Consulting Group analysis shows.
- The “smart contracts” capability through which blockchain can automate and accelerate certain processes, such as claim payments, is estimated to cut expenses in the personal automobile insurance market alone by $21 billion, according to Capgemini. Additional smart contract savings in other lines would also be significant.
- In the past year, 31 leading insurance companies have come together in consortium through The Institutes RiskBlock Alliance to explore blockchain applications.
Blockchain is already making an impact in industries where distribution, transactions and supply chains are critical.
- Shipping. Shipping giant Maersk and others are using blockchain to manage risks associated with supply chain management, including monitoring data for temperature control and container weight.
- Agriculture. • Blockchain can track the journey of crops and livestock from farm to table, which can be critical in the wake of fast-moving food safety scares. Walmart is requiring suppliers to use the blockchain to track key food products like lettuce.
- Pharmaceuticals. • By leveraging blockchain to track and trace medicines, pharmaceutical companies are finding ways to cut costs, elevate security and trust, eliminate error-prone data movements and achieve real-time supply chain transparency.
Use Cases Highlight Opportunities for Improved Efficiencies
Industry experts have spent the past few years exploring exactly how blockchain can improve a complicated and regulation-heavy industry, and the results are exciting.
Certificates of insurance. Organizations of all sizes frequently need to provide proof of insurance to meet contractual and regulatory requirements. But obtaining and managing certificates of insurance is time-consuming, often requiring multiple calls and manual processes. Blockchain can simplify this with a shared, immutable record of information that is maintained in a decentralized database. Proof of insurance for commercial lines is already available on blockchain.
Claims. Every policyholder grappling with a claim wants faster notification — and settlement. Up to now, the claims process has been largely manual and inefficient: file the First Notice of Loss, exchange information on the claim with one or more insurers, assign loss adjusters to inspect and assess the claim, and obtain payment. Blockchain can accelerate virtually all those steps and may even eliminate some of them. Smart contracts stored in blockchain could automate filing, verify losses through trusted third-party data sources and issue payment according to defined parameters in the contracts. What could previously take days or weeks can be reduced to minutes through blockchain.
Policy documentation. Two of blockchain’s characteristics — a single, accurate source of information that can be easily shared — can significantly improve policy documentation and record-keeping. Commercial insurance policies frequently involve manuscript wordings and layered coverages involving multiple insurers. If a change is not updated in all copies of a policy, coverage disputes may arise, potentially creating errors and omissions liability for agents and brokers. Blockchain can reconcile coverage changes, keep track of endorsements, additional insureds and exclusions, and enable all interested parties to view the data they need to handle renewals, coverage changes and claims – in real time.
Reinsurance. A PwC study estimates blockchain can generate savings of more than $5 billion for the reinsurance industry by increasing efficiency in placement, premium and loss cessions, and claims processing and settlement. Blockchain in reinsurance offers a single source of truth and can replace manual information sharing among primary insurers or captives, reinsurers and retrocessionaires. Accelerating processes in reinsurance ultimately can put claim payments in policyholders’ hands much faster.
Moving past misconceptions
Blockchain’s first big market play – cryptocurrency, and specifically Bitcoin – has resulted in some misconceptions about the security and capacity of the technology. But blockchain is far more than Bitcoin. The technology can provide a single, trusted source of information that is highly secure. While the distributed ledgers that store transaction data for cryptocurrencies are often public, blockchain can and does function in private, permissioned environments using digital keys. Hybrid environments permitting authorized users to read data and make changes also are possible with blockchain.
Sensitive information such as insurance policies and financial data can be stored in such environments without fear of exposure to hackers. The nature of distributed ledgers makes it nearly impossible for hackers to breach stored data, which is one more reason so many industries are interested in using it.
Take the next step to be ready for blockchain
Blockchain is much more than a new technology that promises to save time, effort and money. It has the potential to drastically change both the way risk and insurance professionals perform their jobs and the process of insuring risks and paying claims.
To prepare risk managers and insurance professionals for the changes and opportunities that are coming with the onset of blockchain, The Institutes has created an online course. The four-hour course provides both historical context and practical applications, enabling professionals to understand the impact that blockchain will have on their businesses.