July 30, 2018 by Jason Contant
The trick to getting blockchain to work in the insurance space is getting all the players in the market to align and agree on common standards and a way to govern the blockchain, Aon Benfield’s chief information officer said Friday.
“There’s a massive efficiency play there if you can get alignment across the different parties in the chain,” Bob Olson said in an interview. “That’s always the big trick: can you get all the players in the chain to align and agree on common standards [and] a common way to govern the blockchain? That’s kind of what the industry is going through now – to try and figure out which consortium, which group is going to get the right momentum behind them [and then] get some standards built.”
Kelly Superczynski, head of Aon Benfield Analytics for the Europe, Middle East and Africa region, agreed that the benefits of blockchain include efficiency and trying to get some costs out of the equation. As it currently stands, there is a “long chain of people involved” in the insurance process, each with their own system, whether it’s a carrier, managing general agent, broker, reinsurance broker or reinsurer, Olson added. That’s a very labour-intensive kind of process that involves re-keying and revalidation of information, trying to sync information and get claims paid and reconciled.
“But having a shared distributed ledger allows you to effectively, in the ideal world, actually enter it once, have other people supplement and add on throughout the data chain, but not having to do all this re-keying and reconciliation through the whole process,” Olson said.
At this point, though, “nobody really has it working in any kind of scale at this point; it’s still a lot of R&D,” Olson said. (Case in point is Canada’s largest insurer, Intact Insurance, which told Canadian Underwriter recently that it was exploring blockchain’s potential.)
Superczynski said that given expense ratio challenges across the industry, “there’s a recognition across the board that we need to reduce expenses, so using something like blockchain or other technology like AI are high up on the list of carriers’ initiatives because they are trying to figure out how we can get some costs out of the chain.”
Blockchain has a number of potential applications, including travel and marine insurance, she said. Marine is a very paper-heavy industry and there are a lot of endorsements and amendments as goods are physically passed through the chain. “Blockchain people see that as having a significant opportunity in the marine space because of the amount of paper that goes into just moving goods across the world,” Superczynski said.
For Marc Boone, senior director of IT with Aon, distributed ledger technology is the future. “Whether blockchain is the solution for how to transact more seamlessly across different parties or whether it’s some evolution of blockchain, it’s hard to say,” he said. “It’s going to evolve into a blockchain 2.0 or distributed ledger 2.0 or some other tech, but it is coming. The key thing is there is no doubt that there is going to be more data in the future coming from more sources and it’s going to be more joined up than it is today.”
The comments follow the release of the article Blockchain: Mechanics and Magic earlier this month, written by risk academic and former CEO of Aon Benfield Analytics, Stephen Mildenhall. Aon said in a press release outlining the article that “while commentators often tout blockchain as a solution to the insurance industry’s processing and back-office inefficiencies, they are missing its true potential: blockchain technology allows for the re-democratization of data – providing access to data where and when required – and for the reassertion of the individual’s control over their private data.”
In this regard, the article said, insurers are well-positioned to provide the infrastructure and alternative revenue model that will replaced “outmoded and insecure centralized networks” with distributed blockchain solutions. “According to this study, this ‘revolutionary model’ represents the true potential of the blockchain for the insurance industry.”