Blockchain first made its mark as the underlying platform and shared public ledger for recording bitcoin transactions. Today, as the technology enters the mainstream, organizations across industries are exploring how blockchain applications can help cut operating costs, maintain the integrity and security of critical business transactions, and transform the way assets are tracked and managed. This puts the onus on insurance carriers to follow suit.

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Blockchain & Insurance

Leading P&C insurers are experimenting with blockchain in areas such as customer acquisition and retention; product development; underwriting/pricing; claims; and expense and profitability management. As the technology gains traction, we expect carriers to focus initially on enhancing efficiencies, reducing expense ratios in payment processing, data storage/infrastructure, or leveraging third-party data on a blockchain. Over time, blockchain will help carriers through:

• The adoption of smart contracts. Blockchain-based smart contracts enable carriers to react immediately by automating several tasks. These transactions can perform real-time checks using publicly and privately available information to determine a triggering event. They also allow carriers to manage large volumes of transactions in a fail-safe manner. Eventually, smart devices in homes, vehicles, appliances, and machines will rely on smart contracts to monitor performance thresholds and estimate the cost of damages when accidents occur – eliminating the need for a person to be present to assess claims.

• More effective processes and multi-party collaboration. Carriers continually seek new and better ways to refine underwriting, pricing, and claims management. While third-party data can enrich carriers’ knowledge and improve accuracy, the adoption of blockchain by various internal and external entities would generate data from a single, immutable source – promising higher levels of data security and integrity, more efficient data-sharing among insurance industry stakeholders, and a single version of the truth.

• Faster payment processing. Although carriers have used various solutions to accelerate payment processing (mobile, social media, debit cards, electronic transfer), intermediaries’ service fees and clearance times remain a challenge, especially when payments involve international and cross-border transactions; thousands of dollars; multiple countries; and local currencies. Blockchain’s distributed ledger offers instant payments, plus real-time clearance and posting of funds with confirmation. Payments are authorized within the network itself, without the need for a central authority. 

• New business models: Peer-to-Peer insurance and risk pools. Blockchain has the potential to redefine the peer-to-peer insurance model by pooling geographically dispersed parties into a common marketplace; governing smart contracts and consensus in risk-pool management, underwriting, and claims management; accessing carriers/reinsurers that can provide the necessary coverage beyond what the risk pool can cover; and storing and managing premiums/assets in a blockchain digital wallet. These self-governing activities are a step closer to achieving a mutual insurance model.

Blockchain technology has the potential to upend P&C insurance as we know it. Yet numerous challenges must first be overcome, including gaps in talent and technology; the absence of industry standards and an industry-specific platform; and a lack of clarity on regulatory impacts. Nonetheless, we believe the time is ripe for carriers to start thinking about, exploring, and experimenting with blockchain.

To learn more, read our white paper, “The Blockchain Imperative: The Next Challenge for P&C Carriers" or visit our Insurance business unit.