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July 13, 2016updated 13 Apr 2017 8:25am

Innovation focus: Breaking down the blockchain opportunity for life insurers

Collin Thompson, co-founder and MD of Intrepid Ventures, a venture development company that engineers blockchain powered organisations has told Life Insurance International (LII) the obvious impacts on insurance from Blockchain will be in the area of decentralisation and automation

By Ronan Mccaughey

Collin Thompson, co-founder and MD of Intrepid Ventures, a venture development company that engineers blockchain powered organisations  has told Life Insurance International (LII) the obvious impacts on insurance from Blockchain will be in the area of decentralisation and automation.

This is because by nature, blockchain technologies are designed to enable, says Thompson.

A blockchain is a distributed register to store static records and/or dynamic transaction data without central coordination by using a consensus-based mechanism to check the validity of transactions.

As the Bitcoin backbone, blockchain was the first-ever solution to the double-spending problem that does not require a central administrator or clearing agent.

It is therefore felt that blockchain technology can address the competitive challenges many incumbents face, including poor customer engagement, limited growth in mature markets, and the trends of digitization.

Peer-to-Peer opportunity

Thompson explains that peer to peer models and in some cases machine to machine transactions will become more prevalent, as with the inherent cryptographic capabilities and distrbuted architecture of the blockchain, will allow greater privacy while providing a greater capability to share data and information amongst collaborating parties.

He says: “We are already seeing automated product offerings in life insurance and expect to see a movement of citizen science where consumers are empowered with their own information to manage their health and ultimately dictate the level of protection and service they garner from medical practitioners and insurance providers.”

In terms of which markets or insurers that are leading the way with Blockchain, Thompson says incumbents are not "leading" per se, as many are still in the research and exploration phase.

However, he says: “The ones that have taken the time to experiment beyond research are the ones where we feel will have the ability to lead in the coming future.”

UK trial

Thompson’s comments come after the Financial Times reported that the UK’s Department of Work and Pensions began a trial in June 2016 of a system, which uses blockchain technology to pay benefits directly to claimants.

If successful, it is said that the system could be used for tax collection and the sharing of health records.

McKinsey & Company says the insurance industry is uniquely positioned to benefit from blockchain technology. Its recent report says there are three ways in which blockchain can facilitate growth for insurers:

  • Improving customer engagement
  •  Enabling cost-efficient product offerings for emerging markets,
  • and enabling the development of insurance products related to the Internet of Things.

 

Customer engagement

In the case of customer engagement, McKinsey&Company said customers' fears about losing control of personal data as soon as it is handed over to a company and their frustration with the need to repeat data entry processes can be addressed by a customer-controlled blockchain for identity verification (see KYC use case) or medical/health data.

Personal data does not need to be stored on the blockchain; it remains on the user's personal device.

Only its verification, e.g., through a doctor, and related transactions e.g., an examination that has taken place on a certain date) are registered in the blockchain.

The report said: "Here, scale is key to reaping the benefits of blockchain as it requires a sufficient number of parties involved to reuse the verified data."

Emerging markets application

In emerging markets, McKinsey said P2P blockchains with smart contracts could be applied to micro-insurances to offer them at low handling costs, if underwriting and claims handling can be automated based on defined rules and the availability of reliable data sources.

This means payouts to insured farmers, for example, might be triggered when drought conditions are reported by verified climate/weather databases.

McKinsey & Company concluded that Blockchain is a digitization technology that could be of strategic interest for insurers.

The report said:" The biggest challenges to its industry-wide implementation are facilitating collaboration between market participants and technology leaders, succeeding in the operational transformation, and shaping a stimulating regulatory environment.

"Laying the foundation to address these challenges today will put insurance companies in a position to have at-scale blockchain use cases and profit from the technology's benefits in about five years from now."

 

Managing claims better with blockchain

 

Meanwhile, a white paper released by Deloitte says smart contracts powered by a blockchain could provide customers and insurers with the means to manage claims in a transparent, responsive and irrefutable manner.

 

Contracts and claims could be recorded onto a blockchain and validated by the network, ensuring only valid claims are paid.

 

For example, the report says the blockchain would reject multiple claims for one accident because the network would know that a claim had already been

made.

 

Smart contracts would also enforce the claims – for instance, triggering payments automatically when certain conditions are met (and validated).

Overall, while blockchain could lead to greater efficiency for insurers and financial services providers, it is important to stress that the technology is at an early stage of development and updating insurers’ existing IT systems to use blockchain technology could be expensive and risky.

There is also the lack of regulatory framework around blockchain.

 

 

 

 

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