Blockchain technology has the potential to make insurance transactions – from purchasing coverage to subrogating claims – more efficient, but its uptake in the sector remains limited.

Proponents of the technology often face questions about regulatory concerns from senior managers in their organizations and wariness over blockchain’s reliance on cryptocurrency, said speakers at the 2018 RiskBlock Alliance Conference in New York last week. 

“I believe in the potential and I believe there’s a lot here,” said David Bassi, executive director at Ernst & Young LLP in Boston, who said he spent much of his 20 years in the insurance industry reconciling information from disparate sources.

Digital ledger technology, widely referred to as blockchain, is making some inroads into the insurance sector as many in the industry seek time savings and cost efficiencies.

“The insurance value chain is full of manual steps which cause delays throughout the process,” said Vishal Garg, senior enterprise information architect at Farmers Insurance Group in Woodland Hills, California. “Every step that we can bring efficiencies to will reduce the cycle time.”

In claims subrogation, insurers are focusing on reducing inefficiencies, said John Pileggi, assistant controller and blockchain product owner at Liberty Mutual Insurance Co. in Dover, New Hampshire.

“I am close to that process because for Liberty I own all of the domestic payment processing activity,” including claims and subrogation and salvage dollars. “Because there’s not a great, integrated solution, that’s a very manual, inefficient process where we as carriers are sending thousands of individual payments back and forth on a per claim basis, many times in paper check form.”

In addition to technical challenges, blockchain proponents must also convince executive management of the advantages of new technology.

“USAA is a highly compliant company,” said Snehal Desai, innovation director advanced research at the United Services Automobile Association in San Antonio, and there were tough questions from executives at the insurer about how blockchain might raise regulator challenges. “Just because they allow me to tinker doesn’t mean they allow me to make it a feature with members,” he said.

Mr. Pileggi said executives are concerned that blockchain is not yet proven and needs to mature to pass regulatory hurdles. “I’ve struggled to convince and influence certain executives and leadership that blockchain in worth investing in,” Mr. Pileggi said. “There is some thinking that blockchain is theoretical at this point, it’s not proven enough, and we want to see it mature a little bit and we want to see any regulatory hurdles get passed.”

“I think there is also a little bit of a stigma associated with blockchain because of some of the volatility associated with cryptocurrency,” Mr. Pileggi said. “Some folks are not convinced that it is stable or ready for any type of enterprise application on a Fortune 500 scale. Changing mind sets around some of that has been tricky.”

Part of the journey for The Institutes’ RiskBlock Alliance, the insurance organization’s blockchain consortium, has been vetting competing technologies. The Alliance began its digital work on blockchain technology Ethyreum but later switched to Corda, a platform created and built by R3CEV LLC, a software developer in New York.

“We love Corda, so does the rest of the insurance industry because everybody’s going in the same direction,” said Patrick Millar, head of technology, RiskBlock Alliance at The Institutes, based in Malvern, Pennsylvania. “I think it’s much less likely that something’s going to happen where we pull out Corda. I think it’s more likely that we’ll integrate with other blockchains or specific use cases.”

B3i Services AG in Zurich, another digital ledger technology consortium, also uses the Corda platform.

Mr. Millar elaborated on the reasoning behind the switch.

“Ethyreum doesn’t actually lend itself in its current incarnation to the type of privacy that our members would expect,” Mr. Millar said. “One nice thing about Corda is that it’s designed so that only the parties to a transaction actually see that transaction.”

Industry collaborations like RiskBlock are helping move the nascent technology forward.

“The key catalyst for us was the RiskBlock Alliance,” Mr. Garg said, adding he also faces tough questions like “What’s the value?,” “How’s it going to help us?” and “What about regulatory compliance?”

“All those questions continue to pop out,” Mr. Garg said, adding that he, too, has seen the stigma from the cryptocurrency association.

“Just getting organizations to the table is usually half the battle, but I haven’t seen that in insurance,” said Ted Epps, principal at Deloitte Consulting LLP in Chicago. “I think the level of collaboration has been tremendous.”