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NEW YORK — Blockchain technology may hold great promise for the insurance and other industries, but it remains an emerging technology surrounded by as many questions as answers, according to attorneys speaking Dec. 7 at the Anderson Kill P.C. law firm in New York.
Blockchain could prove successful in certain insurance functions, speakers said.
“The killer application for blockchain in my view is in insurance coverage, in automating the resolution of insurance claims, and particularly automating resolution of insurance claims payments,” said Stephen D. Palley, of counsel with Anderson Kill in Washington.
“You’ll see the development of smart contracts in insurance particularly in places where payment takes place using a single trigger,” Mr. Palley said.
He was, however, quick to point out there may be exposures.
“I think some folks will say a business risk associated with blockchain is it’s still an experimental technology,” Mr. Palley said.
In fact, much of the work now being done in the insurance sector using blockchain centers on proofs of concept and other research.
As an experimental technology, blockchain lacks the background and history of other business tools.
“We lack a robust body of developed case law,” said Jeremy E. Deutsch, a shareholder with Anderson Kill in New York. “If you are going to have effective commercial relations, you need to have predictability, and you need to have confidence.”
Much is still unknown about blockchain and how it will function once deployed commercially. Smart contracts, for example, could hold exposures because “you are relying on self-executing code,” which may be triggered by outside data, Mr. Deutsch said.
There are also other unknowns.
“I think there are some very interesting tax risks associated with blockchain,” Mr. Palley said.
Smart contract transactions could involve digital currencies such as bitcoin, which is seen as a different thing by regulators.
Guidance from the Internal Revenue Service in 2014 says bitcoin is property, said Daniel J. Healy, a partner with Anderson Kill in Washington, who added that this is neither a statute nor a regulation. The Commodity Futures Trading Commission says it’s a commodity, he said.
“It’s a little bit of a weird thing right now in terms of exactly where all of this is going to come down,” Mr. Healy said. “While it may never happen, it would be very interesting if the Commodity Futures Trading Commission, Securities and Exchange Commission and Internal Revenue Service disagree.”
Clyde & Co on Thursday said it has launched Clyde Code, a consultancy to advise insurers and clients in other sectors on issues related to smart contracts, blockchain and distributed ledger technologies.