Article Synopsis :
The insurance industry is built on trust between clients and insurers. If there is a breach in the transaction chain, from, say, the increased use of technology, then trust is severely weakened, diluting brand, eroding confidence and ultimately shareholder value.
”Blockchain technology as a platform for digitization” from EY discusses how innovation in insurance in general, and blockchain technology in particular, may revolutionize future infrastructures reinforcing the ‘chain of trust.’ The report explores the role blockchain may play in holistic innovation and risk management strategies, including concepts of cyber liability, big data and telematics.
The report is organized in four parts as follows (with salient points noted):
- INTRODUCING THE BLOCKCHAIN:
The system (blockchain) is a distributed ledger of transactions, a multi-tiered technology that potentially orchestrates the behavior of consumers and their assets based on a series of transaction ledgers. Benefits include:
- Registering electronic transactions in a global insurance blockchain makes transaction fraud impossible
- Verification of transaction authenticity is instant and can be performed by anyone, anywhere
- Zero disclosure of information, all transaction related data remains confidential and is never entered into blockchain
- EVOLUTION IN THE BLOCKCHAIN – NEW DYNAMICS:
Blockchain delivers a mechanism to potentially re-architect certain aspects of the business model:
- First generation: Blockchain technologies (which traditionally supported Bitcoin) based on capturing unique identities, protecting sensitive customer data and maintaining a payments transaction audit trail
- Second generation: Content (contracts, documents, claims forms, invoices that link end transactions with client and policy or claims documents) and access to third-party information
- Third generation: Programmable services (indexation of assets – driving third-party automation or verification services) and internet-of-things data reporting
- OPPORTUNITY FOR INSURERS:
Blockchain, described by leading venture capitalist Marc Andreessen as “the most important invention since the internet itself,” can be leveraged to drive insurance industry innovation across all functions, including:
- Access to secure, decentralized transactions (with common access to a ledger that has a secure audit trail), providing an improved basis for non-repudiation, governance, fraud prevention, financial data and reporting
- Accurate and timely notification of changes, driving improvements in aggregated risk and capital opportunities, as well as big data strategies founded on more available and secure information about customer assets, priorities, preferences and third-party information services
- On a technical level, insurers see an opportunity to aggregate an ecosystem of trusted third parties into a valuable platform, reducing cost and improving customer and market reach, and developing new propositions
- On a market level, insurers see opportunities in enterprise governance through improved data access, third-party controls and more sophisticated management of the risks associated with products and services, including resilience services and cyber insurance
- EXAMINING OTHER ISSUES:
At this stage, as with all innovations, there are ongoing concerns over blockchain scalability, implementation skills, integration with established businesses, and, last not least, governance. Known areas of concern among regulators are:
- Critical infrastructure systems have not reached a point of maturity, with significant legacy technologies still intact after years of mergers and acquisitions
- The lack of maturity around expertise, systems, and shared services to protect corporations and clients from data theft and malware is a high risk
- Standardized processes, methods, and techniques supporting pre- and post-loss control mechanisms are gradually being developed and implemented
Insurers should be exploring three key areas related to blockchain:
- The scalability of the technology itself, and operational integration with existing business systems
- What are the potentially disruptive benefits of blockchain in the context of existing business models?
- Timing, planning and risk management
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Digital Insurer's CommentsBlockchain isn’t just a technology, it’s a whole new way of capturing, processing and trading information. Most of the reports we’ve covered on blockchain focus on smart contracts and claims fraud. This report expands the thinking to include holistic innovation and risk management strategy, including concepts of cyber liability, big data and telematics.
We can see how data impacting the lives of customers, and the solvency and reputation of corporations, can be made immutable and independently auditable leveraging blockchain concepts. Standards and regulations have yet to be worked out, yes, but forward-thinking carriers (and certainly InsurTechs) are investing aggressively to understand the vast possibilities of transacting business in a blockchain-dominant future.
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