Blockchain in financial services

Blockchain in insurance: Five reasons why openIDL will succeed

Share this post:

As an IBM Distinguished Engineer, I have spent the last two and a half years working on blockchain with our U.S. banking and insurance clients. More recently, I have been the IBM technical executive overseeing open Insurance Data Link (openIDL), the insurance network partnership with the American Association of Insurance Services (AAIS). It’s been very rewarding to work with the people at AAIS who truly want to do what’s best for the industry! I believe openIDL is uniquely positioned to succeed and positively impact insurance like nothing else before it. Here is why.

Commitment to open

AAIS and IBM share values of openness, inclusion and interoperability. The openIDL is built on top of The Linux Foundation’s Hyperledger Fabric permissioned blockchain. There is no better place for the community to develop and adopt the code for blockchain for business under truly open governance. In fact, if you look closely at Hyperledger you see Burrow which is Ethereum-based, and you see Quilt, which looks at blockchain interoperability. Also, Hyperledger Fabric is offered as a service not just from IBM but from other cloud service providers. If you’re still not sure about Hyperledger, think about software that’s been widely adopted by businesses — Apache, Linux and others. The pragmatic leaders who made these possible are leading Hyperledger or other Linux Foundation projects.

Learn how Hyperledger makes revolutionary cooperation and innovation possible

Legal mandate

A lot of blockchain initiatives stall after the first project. One of the main challenges is creating an environment where separate legal entities can work together, and rightly so. Anti-trust laws prevent companies from colluding. For insurance, the Property & Casualty Model Rating Law was enacted by the National Association of Insurance Commissioners (NAIC) to protect the public against unfairly discriminatory rates. With all this in mind, insurers are very reluctant to provide access to their data — period. AAIS, with their membership base, already has the business network of carriers and regulators in place. More importantly, in addition to its responsibilities as a statistical agency, AAIS is the only national not-for-profit advisory organization governed by its member insurance companies. This means they have the right to use the blockchain data to learn new insights, and share back with insurers.

My data is under my control

Beyond the legal aspects, insurers don’t want to share their policy and claim data, especially if it could end up in the hands of a competitor. I believe insurers are going to adopt openIDL and provide access to data because they won’t be giving it away. They will retain control of it. With openIDL, leveraging the privacy and confidentiality support of Hyperledger Fabric, a carrier still owns their data and can only allow limited access to specific entities (like AAIS) — in the context of a regulatory data call for example. Data ownership has been a significant challenge with insurance blockchain networks and I see a big difference here with an AAIS-governed openIDL.

Operational and practical

AAIS is not trying to evaluate blockchain or do an innovation project on the side. As part of a multi-year transformation, they are using blockchain to modernize their core processes in order to better fulfill their mission. The openIDL is up and running and it contains real data that was loaded as part of the initial pilot. It is practical and economically viable for insurers and doesn’t require them to pay hefty fees to build a network infrastructure to (perhaps) get value in the future. Yes, being not-for-profit helps! At the end of the day, policy and claim transactional data is the fuel for the openIDL network. We know how difficult it is for insurers to exchange and transform data. The openIDL provides a practical and non-disruptive way for insurers to leverage their data and reap the benefits.

Successful projects happen because organizations of talented leaders and team members have a purpose and know how to get things done. Decisions happen following a core set of values and principles — did I mention inclusive, open, fair and transparent?

AAIS and IBM share these values, which makes for a great partnership. AAIS is committed to the good of the insurance industry, to allow insurers to run their business no matter how big or small. Regulators gain access to useful data and consumers are protected. Building networks isn’t easy, but AAIS knows how to do it!

How insurance could benefit with IBM Blockchain

IBM Distinguished Engineer, Blockchain in Financial Services

More Blockchain in financial services stories

When are stable coins useful?

Global payments revenue grew by 11 percent from 2016 to 2017, according to the McKinsey Global Payments Report, and is projected to grow a further 9 percent per year until 2022. Counter-intuitively, this can be partly attributed to the declining cost of payments, McKinsey says. As cheaper electronic payments continue to replace cash and cheque, […]

Continue reading

The future is crowdfunded

You may have heard about equity crowdfunding as a way of financing a business. Most people have actually participated in crowdfunding before and don’t realize it. If you’ve ever made a donation or tithed, that is a form of crowdfunding known as donation-based crowdfunding. For those history buffs our there, they’ll inform you that the […]

Continue reading

How blockchain is driving innovation in financial services

The past three years have seen an astonishing number of blockchain pilots introduced to explore the emerging technology’s potential impact in the banking industry. Of course, even during the most manic days of blockchain hype, it was always clear that only the most thoughtful projects would eventually make their way into production and demonstrate real […]

Continue reading