October 11, 2017 by Tessie Sanci, Associate Editor
A willingness to collaborate with competitors and investment in new technology are key to greater adoption of blockchain by the insurance industry, according to a recently published report by London, U.K.-based Timetric.
The research firm’s report, entitled Blockchain in insurance, studies the global insurance industry’s slow efforts to embrace the digital ledger technology through which cryptocurrency transactions occur.
In comparison to its banking counterparts, the retail industry and some governments, the insurance industry is behind but “that is no great surprise – it has been similarly sluggish in embracing startups, artificial intelligence and big data,” the report states.
The decentralized and public nature of blockchain technology produces one particular challenge for the insurance industry. Individual users or companies cannot control the blockchain technology to which they subscribe.
“[Blockchain] often forces collaboration between competitors as it is decentralized, so no one party can own it. The key for an industry to making a success out of it is to create a fully integrated, trustless network. This is likely to be extremely difficult to achieve in the insurance industry,” said Jamie Burke, CEO of the blockchain-based company Outlier Ventures, who was interviewed for the report.
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However, the report notes there is some movement in this area. There are more than 10 insurer members in B3i, a global insurance consortium that is investigating how blockchain can help the insurance industry. Members include Allianz, Munich Re, Swiss Re and Zurich Insurance.
The industry’s legacy technology is another challenge in greater adoption of transactions through blockchain. The industry would have to undergo a complete overhaul of its technology or begin a more gradual integration, which would be less risky. The latter is more likely, said Peter Bidewell, chief marketing officer at Applied Blockhain, who was also interviewed for the report.
The integration of blockchain technology into insurance systems will produce significant benefits, according to the report.
One benefit is the ability to pay claims more quickly and without any paperwork. Blockchain’s smart contracts function allows insurers to plug in encrypted instructions. If a customer experiences an insured loss, he or she can provide the information to the insurer and the claim will automatically be paid through the blockchain system.
“Blockchain’s main benefit to insurance is to automate what is presently a lengthy, back-end process in payments, claims and fraud detection,” the report states. “It has the potential to cut a huge amount of costs, and more controversially, jobs.”
Another advantage is the instant updating of risks on a decentralized ledger that multiple parties have access to.
“The problem with a single view on risk is that it often takes 60 to 90 days before insurers even know what risk they have on their books and have often even paid out beforehand,” said Burke in the report.
“There are so many people involved in the process, and it can be so slow that it is hard to get a real-time view of the risk,” he added. “However, on a single ledger, when it updates everyone sees it immediately; it is seen in real time and can be done outside of banking hours. It becomes quicker, removes costs, standardizes data and removes a huge amount of paper.”
This story was originally published by Canadian Insurance Top Broker.