Blockchain is already having some significant beneficial impact on insurance, on both the top and bottom lines. Here we explore some of these current examples and why blockchain is the enabling technology and not just a new toy!
Insurers have an ongoing need to streamline their controllable costs. Blockchain’s immutable record of information and decisions, with a clear audit trail, can really help where there are mirrored processes and/or a need for reconciliations, also helping avoid the delays and disputes arising from differing records. As always there is a friction cost of changing systems, so some new companies have just set up on blockchain from the outset, such as Lemonade and Poleecy – with the former recently setting a record 2 seconds for settling a claim. Some use the ability to embed smart contracts on blockchain to offer efficient insurance based on parametric triggers (such as a flood) or other agreed metrics (such as results from similar customers in the area); Lemonade and Etherisc with Acre Africa are examples relating to farm insurance in Africa. Often these early adoptions involve a smaller network for specific use cases. Examples include Insurwave in marine insurance, who cite the streamlining of 75% of their customer’s cost base and with risk now priced on many more data points; State Farm and USAA successfully setting up a subrogation process they are looking to expand; and Allianz’s International Claims Solution for internally managing cross-border claims.
Blockchain can also help the loss ratio. Immutable data and agreements can enable better pricing of risk, as noted by Insurwave. Fraud can also be tackled through enabling compliant sharing of information; an example is BlockFrauds’ fraud bureau where anonymised speech, text and image intelligence can be shared seamlessly on a private blockchain where it is processed by federated learning that was specially designed to work across decentralised sources without requiring data to be exchanged. The anonymization helps meet regulatory requirements such as GDPR, and compliance is further tightened by the insurers retaining control of the intelligence on their private node.
Blockchain is also helping the top line. New businesses are being established on blockchain, creating new value that requires protection. Cryptocurrencies enable payments from and to customers who may have difficulty accessing legacy banking systems, and these currencies and their wallets also require protection. The metaverse is creating a whole new world of value and virtual assets that require protection, with a recent example being Zurich’s coverage of H Moser et Cie’s NFT watches.
So these are a few current examples of where blockchain is already providing value to the insurance industry, showing the scope for significantly more efficiencies and business opportunities. In future blogs we will explore blockchain technology in more detail, and specific use-cases and potential. Please get in touch if you would like to discuss anything in the meantime!