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Blockchain Benefits for Insurance Insiders

By Marvin Stone, Senior Vice President of Industry Relations,Stewart

Marvin Stone, Senior Vice President of Industry Relations,Stewart

Over the past few years, many insurance industry executives have heralded blockchain as the breakthrough technology that offers the greatest potential for innovation – and disruption. No doubt, the blockchain distributed ledger technology brings features that simply did not exist with previous database systems. From its status as the “unhackable” decentralized database to the idea that smart contracts can speed execution, blockchain brings unique new capabilities and benefits of the insurance industry.

Blockchain Benefits

While there are many potential benefits to nearly every industry, certain aspects of blockchain provide more direct benefit to the insurance industry. Just a few of the more significant areas to focus on are:

• Improved Efficiency through correlation and recording of multiple data sources and events

• Risk Mitigation through verifying authenticity of customers, policies and transactions

• Fraud Prevention which is enhanced by the immutable nature of blockchain storage

• Claims Handling through faster, automatic execution using smart contracts

• Customer Experience that can be enhanced by all of the benefits mentioned above

Potential Issues

While the potential gains from blockchain have been widely publicized, realization of those benefits in the near term often falls prey to three main problem areas: vague visions, problem partners and legal matters.

Vague Visions

Nontechnical executives sometimes place a high bar on new, in vogue technologies. Distributed ledger technologies are a good example. Instead of merely exclaiming, “Put it on the blockchain!” as one industry speaker did at a recent conference, nontech types need to keep new technologies’ capabilities in perspective). Technologists know that any successful project starts with a business need, clear vision, solid use cases and well-written requirements. Blockchain projects are no different. A recent article on an industry website boldly stated that “Blockchain can detect and prevent fraudulent activities […] It can check for authenticity of transactions, policies, claims.” The only problem with those statements is that blockchain can do none of those things natively any better than the common database of decades past. Vague visions lead to unsuccessful proof-of-concept projects.

Partner Problems

What is perhaps more remarkable than the growth of blockchain is the growth of proposed solutions that require wholesale, structural change to entire industries. One unique aspect of any distributed ledger technology is that all parties can have access to shared data via the decentralized, distributed blockchain. Needless to say, these types of collaboration-intensive efforts can take years to launch and gain momentum. Visions of such industry-wide harmony are laudable but typically difficult to achieve. I recently learned of one vision for an insurance-focused blockchain platform that sounded 

technically viable but “would require participating companies to create and agree upon data standards, process flows and governance rules.” That’s all? Even traditional integrations can be challenging when multiple companies are involved.

Legal Matters

Two unique attributes of blockchain are the decentralized, distributed nature of the data storage and the immutable nature of the data. Basically, every participant gets a copy of the data – and they get it forever since it is not able to be deleted. Blockchains are designed to be immutable. If a block is written to a blockchain, for all practical purposes, it cannot later be altered. While that sounds great in theory, your in-house counsel is likely to have opinions about data and document retention-and-destruction policies. Further, Europe’s far-reaching GDPR rules and more recent actions by some U.S. regulators dictate that consumers will have the right to insist that their data be deleted. Of course, these conflicting views could prove extremely challenging if insurance technologists are storing customer data in records that cannot be deleted in distributed databases hosted by multiple third parties.

Starting Points

Insurance companies can achieve big wins by using blockchain for internal purposes first. Internal projects will allow teams to gain familiarity with the new technology without becoming mired in the integration. Further, it makes sense to look at blockchain proof-of-concept projects that blockchain is uniquely suited for.

Alleviating Paperwork

Most insurance industry players still deal with a number of desktop and Web-based systems, as well as partner systems and paper-intensive processes. While most companies have never created a unified logging system to capture all data in a single, trusted, unalterable, time-stamped source, now might be the time as an internal blockchain app of this nature would not only bring correlation of events, data and location of documents together in a single system, but would also serve as an auditor’s dream system.

Fighting Fraud

While a blockchain-based system cannot reduce or eliminate fraud or theft on its own, it can prevent parties from changing records and can serve as a single source of truth. There have been many instances where an employee with access or an unauthorized user was able to easily bypass normal database-system security measures. General consensus is that blockchain makes this type of tampering from internal or external threats far more unlikely.

Delighting Customers

One of the most compelling use cases for the insurance industry would be use of smart contracts. Because insurance policies are normally expressed in long and sometimes confusing contracts, the thought here is that all parties would benefit from recording and validating such contracts on a blockchain. Once a claim is submitted, use of the smart contract concept would allow insurers to auto-execute claim payments when all necessary conditions are met. While not necessarily ideal for low-frequency, high-value insurance contracts, smart contracts could play well in high-frequency, low-value instances where resolution speed could be increased while transaction costs could be decreased.

Looking Forward

Focusing on areas “inside your four walls’ that can provide both experience and near-term benefits serves as a great stepping stone to larger blockchain efforts that involve partners or require participation with consortia members. Leveraging blockchain to reduce risks, improve internal efficiencies and enhance the consumer experience can provide the track record of success to ensure funding of future blockchain projects. Finally, tracking the fast-moving blockchain (and disruption) appearing almost daily from startups and stalwarts alike will provide plenty of ideas.

See Also : Top Blockchain Companies for Insurance

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