July 9, 2018 | Written by: Craig Bedell
Categorized: AI | Blockchain | InsurTech
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There’s been so much talk about blockchain technology lately that one could wonder when the commercials might start running on Home Shopping Network. But other than some high level talk of a shared ledger and confusion with Bitcoin: most people still wonder what “it” is, and how it might actually make a difference.
Simply put, blockchain enables a network of parties who are transacting business to be able to all understand the who, what, when and where of any transaction by having a common record of each aspect of the “deal.”
There are several important implicit dimensions to the value of blockchain, especially when it comes to permissioned blockchain. Everybody involved with the transaction is able to “see” the transaction but only those to which they have specific rights. Members of the network who are not part of the transaction won’t have visibility. Second, the details of each transaction chain are periodically bundled into a block and locked leaving an indelible “footprint” of its details. In blockchain parlance – an “immutable record” of what has been written to and read from each.
For insurance, there are numerous examples of existing “business networks” and business processes for which blockchain is well suited. Some of these networks include:
- Insurance companies
- Third party administrators
- Service providers
- Financial institutions
- Reinsurance Broker
- Ratings and filings
- Rating agency
- Risk assessment
- Insurance company
- CAT Modeling services
- Risk data services
- Rating agency
With privacy, security and access privileges being intrinsic capacities of blockchain, members of the blockchain will have access to all of the information pertinent to each transaction – and, there will be permanent records of all activities.
How blockchain can change rates and regulatory filings
Each carrier currently submits rates and claims experience data — amalgamated and contrasted with market data before it’s reported on a prescribed frequency to state regulators. This pure compliance exercise has returned little value beyond securing the permissions necessary for the carrier to do business in a particular jurisdiction. Imagine now that every carrier submitted to the regulatory and risk reporting blockchain policy level details. Even though the regulatory reports would still only include the mandatory level of detail: the current compliance exercise gives the rating agency the ability to provide back to the carrier much more detailed and robust risk and performance insights derived from the mandatory reporting.
In this example, using blockchain, each carrier and rating agency would share privileges to the company specific details. The rating agency would have the ability to look across all of its member companies for the broader industry, product, jurisdiction performance while protecting the privacy of each company but affording it the ability to provide deeper analytic insights. The regulators would have access to the line of business details for rating reporting as soon as the data is posted to the blockchain but not to any detail greater than is necessary. One member company could not access another company’s information.
In other words, what blockchain achieves that a shared database cannot is to bring, access and viewing privileges along with authenticity, consensus and immutability to the rating and reporting process. The regulatory process become much more efficient and the “footprints” left by blockchain would allow regulators an effective historical perspective eliminating one dimension of the Market Conduct Survey.
For the insurance company, the cost savings of these efficiencies are just the start of the blockchain. Turning a compliance exercise into a risk analytics process promises to revolutionize underwriting, pricing and product design let alone portfolio risk management.
Blockchain is just beginning to be explored in insurance. In a highly regulated business that is all about trust and reliability, the opportunities for blockchain are extraordinary. In the end it will be interesting to see just how far blockchain revolutionizes the business of Insurance.
For more information, visit ibm.com/insurance, or IBM Blockchain for Insurance.