How Blockchain can Transform the Insurance Sector

I love the way technology enables businesses to run faster, better, safer or cheaper. When I hear about buzz words like Blockchain, the actual technology makes sense, but the way it can improve business operations is what I get really excited about.

For those who might not know, Blockchain technology or mutual distributed ledger technology is a peer to peer ledger which is replicated across all users of that Blockchain and when a transaction is updated in one ledger, all other ledgers are simultaneously updated in chronological order. Everyone in the Blockchain can see and verify the chain of events. The ledger is indelible and secure, so offers a solid way of verifying information speedily.

Most people know about Blockchain because of Bitcoin. Virtual currencies like Bitcoin use Blockchain technology to record and verify ownership and the transfer of ownership of the currency from party to party, with no physical currency changing hands. Each Bitcoin has a permanent record of where it has been and who owned it. But Blockchain is much more than virtual currency. The implications for many different sectors of Blockchain are far reaching. Finance, manufacturing, agricultural, and many other sectors are using Blockchain to radically transform the way they do business. Really any business which relies on the frequent exchange of contracts and agreements between two or more parties is a good candidate for using blockchain technology.

The insurance sector is a great example of where blockchain can make a huge difference, both for the insurers, but also in enabling a better experience for the insured. The transparent, immutable ledger that is created in a Blockchain is incredibly secure and ideal for insurance companies which are dealing with and sharing lots of different personal and financial data.

The self-recording ledger, which is verified by every other party in the Blockchain means that central record keeping costs could come down significantly and by incorporating smart contracts, setting certain parameters that have to be met and verified by the ledger before claims are paid, many claims payments can be verified and paid without the need for human intervention.

For insurers offering reinsurance or group benefits, the number of parties involved in the policies can be complex and require frequent checking and consolidation. Blockchain improves transparency and providers a single, verified ledger that all parties have input into. The Blockchain ledger is trusted and secure and can be accessed by all parties that need it.

For the insured party, Blockchain could allow them to find, understand and take up insurance policies faster and easier, driving greater customer satisfaction for the insurers.

In a research paper which investigates “How Blockchain Technology might Transform Insurance” PWC concluded that there are three use cases where blockchain could make a real impact; through the lifecycle of placement and contract documentation, where a blockchain is used to store and share all ancillary contract documents with the broker and underwriters, plus others as necessary. Specific documents could be encrypted and access granted as necessary. This would remove the need for constant checking and rechecking of the same document to ensure consistency, as there would be a single, central repository.

PWC also believes that the claims management process can be improved with blockchain technology, if all the documents created in the claims process were incorporated into a blockchain, as the central admin function, usually done by a claims broker, to inform all the underwriters would be negated. It would also speed up the process.

The final use case, where PWC has identified significant benefits v cost of implementation, is in KYC and AML procedures. Each party in a transaction, brokers, underwriters, reinsurers, have to perform KYC and AML on the same client. If a blockchain existed which recorded the customer’s personal documents and evidence of validation by an approved bureau, with the encryption key being held by the customer, then only the customer could grant access to the firm with which they wished to do business. This would hugely reduce the time spent and cost of KYC/AML activities. In a 2015 article Goldman Sachs estimated that in banking, consistent use of Blockchain in KYC/ AML could save $2.5 billion of the estimated $10 billion global processing costs, an impressive 25% cost reduction.

As a technologist, applying a relatively new technology like Blockchain to an industry sector and radically transforming the way businesses operate is what gets me out of bed on a morning and we are working with businesses to explore the potential of Blockchain.