October 6, 2017 by Greg Meckbach, Associate Editor
Blockchain technology – which forms the basis for the Bitcoin cryptocurrency – could enable insurers to collaborate with each other when two share the same customer and enable coverages through “smart contracts,” a speaker suggested Thursday at the annual Insurance Engineering Conference.
Bitcoin uses public blockchains, which are “fully decentralized” computer networks in which “anyone can participate,” suggested Cristina Ignatenco, a paralegal who manages research on blockchain technology in the insurance space for Blockchain Canada, a non-profit organization.
Instead of using a public blockchain, insurance providers can use blockchain and make it “more private” with a network that is “restricted to a few participants,” Ignatenco added during a presentation – Blockchain and Insurance – at the Canadian Boiler & Machinery Underwriters Association’s 44th Annual Engineering Insurance Conference (AEIC).
“If you are an insurance company you can have another insurance company come in because sometimes you deal with the same customers,” and sometimes multiple insurance firms do the same “know your customer” process on the same policyholder, she suggested.
“If you were to streamline the process, and do one audit with (another company), it would, A, be a cost benefit and B, it would be better for the customer as well.”
But there still needs to be regulation governing when different organizations share customer data using blockchains, Ignatenco suggested.
Blockchain is distributed ledger technology that uses a peer-to-peer network and the cryptography used ensures that the information on the ledger cannot be tampered with, Ignatenco noted.
“If one node is being attacked, everyone in the network knows that it is being attacked,” she said. “So it’s secure from this standpoint”
Also the technology is intended to prevent people from denying having made a transaction.
“Let’s say I want to send somebody $5,” Ignatenco told AEIC attendees. “I would send them my public key with my transaction and I sign off the transaction using my private key …. the value in this is, no one can come back and say ‘I didn’t send the $5,’ because my private key is attached to the transaction and no one else would have my private key.”
One application of blockchain technology cited by Ignatenco was Everledger’s use of blockchain to store what Everledger calls “smart contracts.”
One example of coverage using a smart contract – which Ignatenco suggested is at the “proof of concept” stage – is for flight delay.
“Someone could purchase a policy and if their flight is delayed for five minutes, 10 minues, half an hour et cetera, they get an instant payout,” she said.
With smart contracts, “they are very execution-based, so if this threshold happens, execution is going to happen,” Ignatenco said.
Another example is a farmer who is guaranteed a certain payout if there is rain over a certain period of time, resulting in crop failure.
“Traditionally with contracts there is a lot of social context,” Ignatenco noted.
“I think in the future we need lawyers to regulate this space,” said Ignatenco. “There are unforeseen eventualities.”