Blockchain is emerging as a potentially disruptive force capable of transforming the insurance industry by making transactions faster, cheaper, more secure and transparent. In every meeting I’ve had with global insurance chief experience officers (CXOs) in the last couple of months, I was asked about blockchain. I’ve found that most insurance CXOs are keen to understand two aspects of the blockchain: what challenges in the insurance industry can be overcome with the help of blockchain, and what the emerging blockchain use cases are for the insurance industry.
Leveraging blockchain for insurers
Judging by the questions I receive about blockchain, there’s still a lot of confusion around what distributed ledger technology can actually do and how mature it has become. I see these as the top three challenges where blockchain can be leveraged by insurers:
Underwriting: Accepting liability for commercial risks involves mitigating exposure to the insurer to the extent affordable premiums can be offered to the insured. Limiting exposure involves finding other more efficient risk pools to recede risks at a lower price. The options available for recession are limited by the insurer’s ability to share information about the insured as well as rigid standards of risk recession.
Claim settlement: Settling claims is often a lengthy and complicated process. Pools of property and casualty (P&C) risks are usually shared by multiple parties, including insurers and reinsurers, who are expected to jointly indemnify the insured of losses to the extent of the insured’s interest. However, the risk is distributed across complex layers of paper contracts with very little transparency and information sharing between stakeholders, leading to inefficiencies from cost and time perspectives.
Fraud and abuse: Inspecting and analyzing enormous amounts of structured and unstructured data to uncover fraudulent activity is a daunting task.
I would also like to point out two cases where blockchain technology is already being used in the insurance industry and the successes they are seeing:
Catastrophe swap and bonds: Transactional processing and settlement between insurers and investors can be significantly accelerated and simplified by blockchain-based contracts.
P&C claim settlement: Claims processing can be automated using trusted third-party data sources and the codification of business rules in smart contracts on a distributed ledger. Transparent and immutable data on a distributed ledger can also reduce fraudulent claims to a fraction of what they are today.
The transformation of the insurance industry is top-of-mind for CXOs and blockchain might be the hottest topic in the rapidly changing world of fintech. I think this technology has the potential to reshape the insurance industry, but it requires careful collaboration with other emerging technologies, regulators, incumbents and additional stakeholders to be successful.
IBM is helping insurers across the globe to determine how blockchain can transform the way they do business, and how to make it easier to innovate on top of this middleware fabric. IBM is a founding member of Hyperledger, a Linux Foundation Project, and has been a leading voice in developing collaborative open standards for distributed ledgers and smart contracts.
Head to IBM Blockchain to learn more about distributed ledger technology. To receive the latest news on blockchain, sign up for the developerWorks newsletter and join the community to stay connected:
The openIDL is an open blockchain network that streamlines burdensome and expensive regulatory reporting, providing new insights for insurance carriers while increasing the timeliness, accuracy, and value of data reports for regulators. In order to provide insight into the health of the insurance market, U.S. state insurance regulators enacted laws more than 70 years ago […]
The challenge of data authenticity and data controls in the insurance industry continues to grow at a time when regulators are increasing data security requirements. Regulators do not consistently request data from insurance carriers across all states and may be looking at incorrect, incomplete or outdated data. Carriers only share minimal information because they do […]
Most of us have heard of blockchain, but as it has moved from buzzword to viable business applications, it has not always been clear how to take advantage of its benefits. Clearly, it is about more than just about coins and tokens, but how is it relevant to regular business? Many people know that blockchain […]