Blockchain has the potential to change how insurance companies do business. Blockchain can help carriers save time, cut costs, improve transparency, comply with regulations, and build better products and markets.
What are the Benefits of Blockchain in Insurance?
Blockchain technology will bring about significant efficiency gains, cost savings, transparency, faster payouts, and fraud mitigation while allowing for data to be shared in real-time between various parties in a trusted and traceable manner. Blockchains can also enable new insurance practices to build better products and markets.
Insurance companies operate in a highly competitive environment in which both retail and corporate customers expect the best value for money and a superior online experience. Blockchain technology represents an occasion for positive change and growth in the insurance industry.
With Ethereum’s smart contracts and decentralized applications, insurance can be conducted over blockchain accounts, introducing more automation and tamper-proof audit trails. Notably, the low cost of smart contracts and their transactions means that many products can be rendered more competitive for penetration of underinsured markets in the developing world.
Finally, the emerging blockchain ecosystem will itself require insurance. Cyber insurance can be taken as a template for coverage, with extensions and endorsements for financial loss (hot wallets and exchanges), specie and crime (cold wallets and vaults), professional liability (developers), and surety bonds (technology and software projects). Insurers can cooperate with tech companies, such as ConsenSys Diligence, to assess risk and advise on best practices for loss control and mitigation.
Blockchain and Insurance
A report from ConsenSys Solutions on blockchain and the insurance industry, detailing how the technology will help enhance the industry’s existing processes and enable new practices.
What are the Blockchain Use Cases in Insurance?
Blockchain can be applied throughout the insurance industry and across many lines of business, including:
- Registries of high-value items and warranties
- Know-your-customer (KYC) and anti-money laundering (AML) procedures
- Parametric (index-based) products
- Reinsurance practices
- Claims handling
- Distribution methods
- Peer-to-peer (P2P) models
How will blockchain impact registries of high-value items and warranties?
- Create an immutable and trustworthy record of products’ provenance for the benefit of all stakeholders
- Track products’ ownership and claims in real-time and even across borders
- Enhance industry-wide efforts to mitigate claims fraud by superior data and data-sharing
How will blockchain impact KYC/AML processes?
- Establish a tamper-proof repository of customer data that can be safely shared between organizations
- Reduce risk of error and duplication of effort through this mechanism of cooperation, saving time and resources
- Improve visibility of customers’ activity across institutions, improving compliance and regulatory oversight
How will blockchain impact parametric (index-based) insurance?
- Automate most or all parts of parametric insurance
- Embed a policy’s logic in a smart contract and let an oracle (digital feed) trigger execution upon a predefined loss event
- Settle and clear all transactions without manual intervention
- Streamline catastrophe bonds and other insurance-linked securities (ILS), flight delay and cancellation insurance, and crop insurance
How will blockchain impact reinsurance?
- Allow primary insurers, reinsurers, brokers, and regulators to share data securely in real-time
- Automate risk modeling, audits, and compliance checks
- Bind towers of risk and treaties on a single time-stamped smart contract
How will blockchain impact claims handling?
- Create a trusted, tamper-proof, industry-wide record of claims
- Reduce claims fraud by eliminating data silos
- Grant customers more control over their own data, including access rights
How will blockchain impact the distribution of insurance?
- Coordinate the actions of multiple parties at low cost on an online marketplace
- Give consumers direct access to numerous carriers on the same platform and allow them to manage various policies on the same platform
- Make transactions for paying premiums or claims fast, easy and cheap
How will blockchain impact peer-to-peer (P2P) insurance?
- Enhance existing P2P models, such as reciprocals and mutuals, by automating tasks and holding funds in escrow on smart contracts
- Underpin new P2P models in which policyholders’ decision-making is aligned and incentivized through tokens and staking of tokens
Insurance with, on, and for blockchain
The insurance industry has tended to lag behind banking and other financial sectors in digital innovation, but it is well-placed to benefit from blockchain technology. Insurance with blockchain is about enhancing existing business practices through better data and data-sharing. Insurance on blockchain is about building new products on a novel foundation of trust. Finally, insurance for blockchain means underwriting the risks of an emerging ecosystem.
Want to learn more about how blockchain is transforming insurance?
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