In the grand scheme of things, the potential of blockchain technology is huge and it is often touted as the biggest disruptor in almost all industries and somewhat of a fourth industrial revolution. Although still very much in its infancy, this business unusual technology provides a comprehensive, always up-to-date record of anything and everything – from physical assets to electronic cash and it is all publicly available.
Like some other sectors, the global insurance sector has been slightly wary of the new technology, but are slowly coming around to using it or seeing its benefits. In October last year, insurance giant Zurich launched The Blockchain Insurance Industry Initiative, or B3i, to help examine the potential advantages blockchain technology could bring to the insurance industry. On paper, the advantages are definitely appealing.
I think it’s in the industry’s best interest to embrace blockchain technology as soon as it can as it could help reduce insurance fraud. As it stands, fraudulent claims cost the UK policyholder an additional £50 on their insurance bill each year yet a blockchain database could substantially reduce that. Insurers and brokers could use the database to detect identity fraud by verifying claims history and police reports. Only valid claims from those contracts and claims recorded onto the blockchain would be able to progress, and multiple claims for one accident would be rejected.
On a practical level, storing contracts and transactions on a shared database reduces the cost of insurance by simplifying transactions and minimising administration. The chances of data entry duplication, and the disputes and delays this can lead to, will also be significantly lessened and blockchain can also reduce administration and effort for brokers when it comes to identity verification and contract validity checking.
Blockchain technology uses a decentralised database which serves to record transactions across multiple computers without a central hub. This hub usually functions as an obvious target for cyber-hackers but blockchain technology is secure by design and the data stored within a ‘block’ cannot be retroactively altered by any party. Not only does this ensure consistent and transparent contracts but it reinforces a safe and dispute and error free insurance sector.
One of the first insurers to pilot a so-called “smart contract” using blockchain technology was AIG. They partnered with IBM to complete a policy for Standard Chartered Bank PLC was the first of its kind using blockchain technology to facilitate sharing of real-time information for a main policy written in the United Kingdom, where the bank is headquartered, and three local policies in the United States, Singapore and Kenya. Sponsored
While other insurers are still to follow, blockchain technology undoubtedly has the potential to transform how transactions, policies and claims are recorded and processed. Yet one of the key reasons why the UK insurance sector is not using blockchain technology as much as it should be, boils simply down to the cost factor.
Implementing this technology across all channels within an organisation takes time and expert assistance, both of which usually come with an hefty price tag. In the case of AIG, it created a new partnership and this is something that we are likely to see more of as blockchain becomes prevalent in the insurance sector.