Insurance ripe for blockchain, costs and regulations weigh: Fitch panelPosted On: May. 2, 2018 12:21 PM CST
Distributed ledger technology including blockchain could transform the insurance industry, but challenges remain before benefits can be achieved, according to analysts speaking on a conference call Wednesday hosted by Fitch Ratings Inc.
Blockchain is a “potentially transformative technology,” said James Auden, managing director at Fitch in Chicago, because the insurance industry is a data-intensive business and insurers execute large volumes of transactions that include interactions with numerous outside partners.
“The potential for this technology is evident,” Mr. Auden said.
Digital ledger technology can be used to speed up processes, said Gerry Glombicki, Chicago-based director at Fitch, which could ultimately lead to enhanced customer satisfaction.
“Insurance has mostly been a paper business that has a lot of human-touch elements involved in it,” said Christopher Grimes, Chicago-based director at Fitch.
If blockchain can be used to automate processes and reduce “frictional costs” associated with human interaction, “that’s where the benefits lie for insurers,” Mr. Grimes said.
Costs associated with the adoption and evaluation of the new technology, however, can be a barrier to entry for some.
“The costs associated with it seems to be one of the impediments here,” Mr. Glombicki said.
Regulatory and compliance uncertainty is also a challenge, Mr. Grimes said, as any technology or system adopted or deployed by an insurance company must be within regulatory guidelines.
Developing a common platform, according to Mr. Glombicki, is also necessary for the new technology to move forward.
“You have to have that common platform,” he said. “Without that interoperability between the platforms, the whole system fails.”
Any new technology adopted or deployed must also work seamlessly with insurers’ existing legacy systems, which often represent a substantial investment, Mr. Grimes said.
Mr. Glombicki pointed to the work of industry consortiums B3i Services A.G. in Zurich, which just recently transitioned to a for-profit entity; and The Institutes RiskBlock Alliance, the digital ledger technology consortium started by The Institutes, the insurance industry education and research organization in Malvern, Pennsylvania.
He called their work a “thoughtful effort by some industry trade groups to try to come together and work on this in a cost-effective manner.”
He added that such groups are a good way for smaller enterprises without the resources to pursue their own blockchain programs to become involved with the new technology.
Those who become involved early may reap the greatest benefits.
“Traditionally speaking, there has been a first-mover advantage to companies” that adopt new technologies early, Mr. Glombicki said.
The converse may also be true.
“If you are not at least trying to understand what it is,” even without a capital investment, “then you risk falling behind,” Mr. Grimes said.