Article Synopsis :
Blockchain remains a raging hot topic in financial services. Over $1.9 billion has been invested in over 800 blockchain startups. Some of the largest players in the global insurance and reinsurance markets have joined alliances such as R3, the Post Trade Distributed Ledger Group, and the B3i consortium to explore the technology. And several P&C insurers are offering products built on distributed ledger technology (DLT) and accepting cryptocurrency for premium payment.
Still and all, Is the blockchain hype warranted? Only time will tell. But what we do know is, per this report from Accenture, that 33% of insurers are either using or planning to use blockchain in the next two years, and another 36% have it on their agendas.
There are three models for deploying DLT:
- INTRA-CARRIER: Tightly-controlled deployment within an organization, typically to streamline back office processing. This misses a main benefit of DLT—the facilitation of transactions between trustless or semi-trusted counterparties without an intermediary.
- INTER-CARRIER: Carrier-to-carrier transactions, attempting to capitalize on the the inherent speed, traceability, and consensus mechanisms of DLTs. Reinsurance is one area ripe for disruption as it’s a complex but standard process for which process improvements directly yield value. Use cases also exist in CAT swaps and subrogation.
- ECOSYSTEM: CARRIERS + VENDORS: The ecosystem model is the unification of a wide range of parties – carriers, brokers, consumers, services providers, and more – on a blockchain to solve a common problem. Tokio Marine, for example, recently tested a blockchain-based insurance policy for marine cargo insurance certificates, cutting by 85% the time it takes a shipper to receive an insurance cert. Travel insurance claims management and smart contracts are other use cases.
The report issues the following considerations for potential blockchain engagement:
GEOGRAPHY: Blockchain solutions crossing jurisdictional, state, and national boundaries will have varying requirements for legal and regulatory compliance, as well as considerations around regulation, currency exchange, business practices, and macro-economic influences.
REGULATORY: Regulation of blockchain solutions is and will likely remain an ever-evolving issue. Compliance with the numerous state Departments of Insurance, state and federal agencies, and regulations will remain a challenge as blockchain scales up and expands use-areas.
COMPLEXITY: Complex use cases and intricate ecosystems drive more advanced solutions. Adding participants increases transaction loads, security risks, and points of integration, leading to more overall complexity, as well as cost and project risk.
INVESTMENT: As the scale and complexity of blockchain solutions grow, investment and ROI come under increased scrutiny. What is the best investment option? Self-driven research, acquisition, joint-venture, or even a subscription?
RISK: With all new and developing technologies, the risks associated with utilization shift as the technology matures, and blockchain is no different. Individual and/or corporate privacy, cybersecurity, and even financial loss to consumers and investors must be weighed.
SPEED TO MARKET: Low levels of adoption will, in the near term, remain an impediment to the realization of the benefits of blockchain. As blockchain moves into the mainstream, however, speed to market, and realized benefits, will accelerate.
The report suggests the below time-frame for enterprise blockchain adoption:
Digital Insurer's CommentsIf we are to see a blockchain revolution, many barriers beyond the technological—governance, organizational, societal—will have to fall. For this reason we believe the blockchain-led revolution of insurance is still many years off.
But this doesn’t mean you should sleep on the technology. Blockchain is foundational, as opposed to merely disruptive. Like the internet itself, if and when blockchain hits the insurance mainstream, virtually everything of value will run on it. Develop a strategic point-of-view on blockchain, and update quarterly.
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