Article Synopsis :
Though we’re still ‘early days’ for blockchain in the insurance sector, clear evidence from across the financial services industry strongly suggests blockchain technologies are capable of delivering greater efficiency, growth and competitive advantage. This paper from KPMG explores how blockchain is working its way into the insurance mainstream.
What is blockchain?
Blockchain is essentially a permanent and immutable record of transactions within a network. At the root of the blockchain are ‘digital ledgers’ distributed amongst all network participants to serve collectively as a common source of truth. When a transaction is conducted, it is recorded in sequence in the digital ledger and these ‘blocks’ are then tied together into a ‘chain’.
Since the system relies on references to other blocks–cryptographically secure within the digital ledger—it’s almost impossible to falsify. Most observers therefore believe the system to be immensely more trustworthy and transparent than traditional approaches to sharing data across a value chain or even within an enterprise.
While blockchain technology can be applied within virtually any industry, financial services organizations have been the most active innovators. In fact, since early 2014, more than 40 financial services firms (or their strategic investment arms) have invested in a blockchain or related startup.
How is the insurance sector responding?
AXA, USAA, Lloyd’s, Allianz, AIA, New York Life, MSIG, SwissRe, John Hancock, and Manulife are all testing blockchain applications. Blockchain use cases typically fall into two broad categories:
- Internal use cases: These do not rely heavily on network effects but typically aim to improve internal efficiency in order to reduce cost to serve. These initiatives can also deliver significant top-line revenue growth. Top-line growth generated by internal process simplification may in fact exceed expected operating cost reduction.
- Industry use cases: These typically rely more on network effects and require wider industry or cross-industry buy-in. Within insurance, the most influential blockchain consortia is currently B3i, announced by Allianz, Aegon, Munich Re, Swiss Re and Zurich in October 2016. This initiative is aimed at sharing ideas, testing use cases and pursuing concepts related to the wider insurance sector.
More specifically, popular insurance use cases include:
- Travel and life insurance: Develop a ‘pay as you travel’ insurance model that provides immediate payouts in the event of delays or cancellation
- Personal accident insurance: Create a transparent and seamless claims journey that dramatically improves customer satisfaction
- Record keeping: Leverage blockchain to create, organize and maintain company records in a single, reliable and accessible repository
- Digital identities: Use blockchain data and digital ledgers to digitize and validate customer information and improve compliance
- Claims management: Automate the verification of coverage and streamline claims settlement to improve operational efficiency and remove costs
- Reinsurance claims: Allow for the automation of straightforward claims triggered by smart reinsurance contracts and models
- Surety insurance: Create a ‘golden source’ of information on surety bonds that is available in real-time to all participants
- Peer-to-Peer insurance: Build a peer-to-peer network to establish smart contracts without the need for an intermediary or administrator
Over time, blockchain is likely to significantly impact the following insurance processes:
- Claims management
- Reserve calculation
- Fraud, risk determination
There are many ways insurers can start preparing for the disruptive impact of blockchain. The report suggests five specific actions executives can take today to pursue value with this potentially game-changing technology:
- Educate yourself, your executive team and your decision makers about the disruptive potential and threat posed by blockchain.
- Develop a strategy and roadmap for implementing blockchain within the enterprise and with other third parties.
- Nurture, foster, incubate, partner, invest or acquire blockchain and digital ledger skills and capabilities.
- Get involved in industry blockchain and digital ledger partnerships, consortia, standard setting bodies and other collaborations as early as possible.
- Identify and qualify specific blockchain use cases based on a 100% focus on ROI and robustness of business case.
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Digital Insurer's CommentsWhat makes blockchain so potentially disruptive is that it’s a foundational technology, not just an app or a peripheral tool. You can build entirely new structures from blockchain fundamentally redefining how work gets done.
For example, JP Morgan Chase moves $7 trillion around the globe each day and they’re using blockchain for the $4 trillion transferred between their own bank branches. It’s conceivable blockchain becomes the industry standard for inter-bank transfers within the next ten years. We’re not saying it’s going to happen, but we are saying it can happen, and the massive potential scope of the shift tells you why you need to think seriously about blockchain technology now.
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