Blockchain technology breaks throughReprints
The use of blockchain technology is taking a small step forward in the commercial insurance industry as early efforts aim to highlight how the tool can be used to streamline the claims process and mitigate human error.
In June, American International Group Inc. said it had partnered with technology provider IBM and client Standard Chartered Bank P.L.C. in a pilot effort to create the first multinational, “smart contract” based insurance policy using blockchain.
Also last month, The Bitfury Group, a U.S. blockchain technology firm, said it formed a strategic partnership with Washington-based broker and adviser Risk Cooperative to use blockchain digital ledger technology in the broking market.
The Blockchain Insurance Industry Initiative, known as B3i, has grown to 15 members since its formation in October 2016, led by reinsurers Munich Reinsurance Co. and Swiss Re Ltd., along with insurers Aegon N.V., Allianz S.E. and Zurich Insurance Group Ltd. Other members include Assicurazioni Generali S.p.A., Hannover Re S.E., Liberty Mutual Insurance Co., Scor S.E., and XL Group Ltd., which does business as XL Catlin (see related story).
Taken together, the projects show what progress is being made with blockchain and what promise it may hold for the insurance industry.
Tracy Dolin-Benguigui, director and sector lead, S&P Global Ratings in New York, said she thinks a lot of insurance players are curious about blockchain and are trying to see how it can work.
“Conceivably, the way it could work is the development of smart contracts, and that could help expedite claims payments,” Ms. Dolin-Benguigui said. “If it works out the way it is intended to work, it may actually reduce risk,” by taking human error out of the equation.
Some insurance players see advantages in the new technology.
“Blockchain, particularly the aspect of a distributed ledger or registry, has the ability to enable new modes of engagement between insurers and customers,” said Dante Disparte, founder and CEO of Risk Cooperative in Washington. “Not only would these engagements ride on an incredibly secure and efficient platform, in principle blockchain can also enable an entirely new level of self-service that can radically change the insurance industry.”
“In insurance, blockchain can enable transaction flow across multiple layers of counterparties from original insured, to brokers, to primary carriers, to reinsurers, all the way to capital markets, potentially redefining the standard for digital transaction processing,” Jags Rao, blockchain workstream lead at Swiss Re in Zurich, said in an email.
Areas like payments and collections, claims processing and administration and back office functions are more likely to be affected compared with underwriting and pricing, added Mr. Rao. “Simple contract automation, intercompany settlement and claims administration are the natural starting points.”
“I’m confident that in more high volume, but high trust areas of insurance operations such as finance, invoice processing, internal and regulatory reporting and even payroll we will see established blockchain providers in the next five years with the insurance sector leveraging them as a business process outsourcing service,” Paul Prior, managing director, global insurance services practice for FTI Consulting Inc. in Dublin, said in an email.
The technology is established and proven, most notably by the bitcoin cryptocurrency application.
“The bitcoin blockchain has been securing transactions and asset transfer for eight years without being hacked,” said Valery Vavilov, CEO of Bitfury, which has been working on a variety of blockchain applications, including a project with the government of the Republic of Georgia that has already implemented a blockchain-based system to create a secure nationwide land registry.
“Blockchain’s benefit is that it brings new efficiency and security to the Internet,” Mr. Vavilov said. “Blockchain’s main advantage is that it provides unparalleled levels of security (because) it’s a decentralized structure without a single point of failure. Blockchains generate trust in environments such as peer-to-peer financial services or the exchange of sensitive asset or data drafters.”
After initial success in its pilot application with Standard Chartered, AIG plans to investigate blockchain’s potential further, according to Carol Barton, head of multinational insurance at AIG in New York.
“We are looking across AIG, speaking with several clients and brokers about next steps with blockchain more broadly,” Ms. Barton said in an email. “We have to fully understand the impact of this pilot.”
The pilot application with Standard Chartered, she said, showed some of the benefits achievable through blockchain use, including immediate access to policy information, visibility into premium payment and coverage at the local and master levels and several permissioned access points to policy.
Mr. Disparte sees even further potential.
“While the ‘smart’ features in this case are largely focused on AIG’s advantages with policy administration and jurisdictional issues, the opportunities to create a class of truly intelligent insurance solutions leveraging blockchain are not being fully exploited by the established players yet,” he said.