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Building trust in insurance through blockchain

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IBM’s Bertrand Portier leading a blockchain panel at InsureTech Connect

 

To a capacity Las Vegas meeting room that saw attendees sitting on the floor and lining the walls due to every seat being filled, it’s clear that interest in blockchain in the insurance industry has reached a fever pitch. At InsureTech Connect, a panel of insurance visionaries assembled to share their first-hand experience of how the distributed ledger technology is transforming a centuries-old industry. Led by IBM Distinguished Engineer in Financial Services, Bertrand Portier, and joined by Jeff To, Salesforce Global Head of Insurance, Sastry Durvasula, Marsh Chief Digital Officer, and Truman Esmond, AAIS VP, Solutions & Partnerships, each industry thought leader has been on the front lines of seeing blockchain implemented in insurance and explained its revolutionary ability.

No debate: Insurance is built on trust

Mr. Portier explained that while there is some question on what exactly were the first instances of insurance, there is not a debate on what the purpose was. Definitively, insurance is built on trust, “There’s no argument that the first insurance company was built on trust,” he states. In its simplest form, a pool of money is managed by someone who is entrusted to administer these funds in a reasonable and expedited manner to those who need it, in the event of an emergency. With the absence of trust, the exact opposite happens, where fraud and premiums can increase exponentially. Fraud is not limited to customers, but historically can happen with any party involved in the transaction. Generally anyone who provides input to an insurance claim, is subject to fraud. Some it is malicious and criminal, other times discrepancies can be classified as human error. But regardless of the intention, fraud is estimated to cost the insurance industry approximately $80 billion annually.

Blockchain’s trust building ability

To distill it simply, blockchain holds the potential to restore trust and transparency in an industry that desperately needs it. Both are a central tenant that is necessary for a successful, profitable insurer who is on the journey to digital reinvention. But how does blockchain for business meet the challenge of establishing trust again in insurance? Mr. Portier explains in four critical components:

  1. Permissioned network: The identities of the participants on the blockchain are always verified, where only those who are approved to perform a transaction, can.
  2. Distributed ledger: Supports complete privacy and security within a larger network, and provides the ability for only the relative parties to participant in the transaction.
  3. Smart contracts: Where the development, deployment, and management of smart contracts is based on a strong programming model and languages such as node.js.
  4. Consensus: The use of permissioned networks, allows the use of more flexible and modular consensus mechanisms based on endorsement. No mining required!

Demonstrating a Marsh proof of insurance request

Expediting policy and claims transactions in an accurate and secured process, or to “reduce friction” in business processes, applies to all involved in the insurance value chain. These include insurers, reinsurers, regulators, and of course, customers. This sounds great, in theory, but does it actually work? Are there any use cases where we can see results? That answer is yes. Starting with Marsh, who is betting big on blockchain, their efforts were described by panelist Sastry Durvasula, with an assist from Jeff To and his insurance team at Salesforce:

“By making proof of insurance accessible digitally and instantaneously for our clients through Salesforce, we are streamlining a key business requirement through easy and secure sharing of proof of insurance.”

Mr. Durvasula proceeded to give a live demonstration for the audience of a Marsh proof of insurance request powered by the IBM Blockchain Platform, and accessible through the Salesforce Platform. Fresh off their announcement at Dreamforce, IBM, Marsh, and Salesforce are working together to restructure the certificate of insurance process, leveraging speed, efficiency, and security for Marsh clients.

Hyperledger Fabric: Architecture matters

Demonstrating AAIS’s Insurance Data Link

Previously covered on the IBM Insurance Blog, Truman Esmond of AAIS, gave an overview of the launch of openIDL, an open and permissioned blockchain network for insurance industry reporting. The network is up and running with millions of records creates as part of the successful pilot. As previously described, AAIS recognized that a permissioned blockchain would be the perfect technology to lay down upon their existing advisory organization network to improve the process of exchanging data between carriers, regulators and rating agencies. He then shared a live demonstration of the new AAIS platform, the Insurance Data Link, showing a Data Call List. As he showed its ability, he stated:

“The understanding of blockchain and Hyperledger is very valuable to us, particularly as it is changing so fast. If we didn’t have the relationship with IBM I’m not sure we’d be able to keep up with the train.”

This platform lets AAIS “democratize information across the insurance industry” that will ultimately bring down costs, increase transparency to offer the best possible risk management solutions. Bertrand Portier added:

“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, an insurer 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.”

As Mr. Portier joked at the beginning of the session, IBM is not quite “International Blockchain Machines,” but we are excited to see what the future holds in building trust once again in the industry through this evolutionary technology.

For more information about the material presented during this session, please visit:

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