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Blockchain Technology Emerging in the Insurance Industry

Technology--Blockchain
September 22, 2016

In the Captive Wire newsletters from September 16, 2016, we reported on the recent meeting sponsored by the Bermuda Business Development Agency, which took place between the Bermuda Monetary Authority and 10 reinsurers in Bermuda and was facilitated by the technology consortium R3 Technologies. The meeting brought together technology, underwriting, and regulatory experts to explore ways that revolutionary distributed ledgers, based on blockchain technology, could fundamentally change their business and give Bermuda a leading role in a rapidly-evolving digital economy.

While blockchain technology is rapidly gaining ground in the banking arena, its uptake in insurance has been slower. But this “wait and see” attitude seems to be changing, as evidenced by the meeting in Bermuda. Therefore, captive managers and owners would be wise to at least become familiar with this technology and the various potential applications for insurance.

So what is blockchain technology? In their July 2016 report, "Blockchain in insurance—opportunity or threat?," McKinsey & Company defines a blockchain as "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 thus well suited for applications requiring transparency on records with a permanent time and date stamp, such as titles, document histories, and notary services.”

Within the insurance industry, what are the potential usages for blockchain? Most industry experts agree that there are somewhere between three and five areas where blockchain could be employed. However, with the advent of brainstorming sessions like the one in Bermuda, the list is likely to grow.

Current identified usages include the following.

  • Increased customer engagement and satisfaction. This is done by allowing customers to maintain control over their personal information while also facilitating a “one and done” need to provide such information when applying for coverage, submitting claims, or paying premiums.
  • Automation. This is closely aligned with the first usage. Insurers will be able to expedite both underwriting and claims processes by implementing blockchain.
  • Fraud detection. Since the use of blockchain increases the transparency of transactions, it will enable better fraud monitoring and detection.
  • New product development. From microinsurance to the Internet of Things, blockchain technology will allow insurers to provide new, more cost-effective products.

In coming articles, we will look to highlight how some of the new InsurTech start-ups are harnessing the power of blockchain technology either to provide new products to insurers or to disrupt the existing market.

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