Blockchain and Insurance
At the 2018 NCCI Annual Issues Symposium, Paul Meeusen, from Swiss Re and B3i discussed how blockchain can impact the insurance industry.
Blockchain is defined as a digital data structure for identifying and tracking information across a network of computers. Blockchain provides a transparent and secure way to track and distribute the information. In insurance, we are talking about the information chain between the risk (policyholder) to the insurer, to the reinsurer and then to the capital markets.
The problem with data now:
- Decreasing quality of the original risk data.
- Higher operational risk and cost.
- Information asymmetry.
- Capital markets ill informed.
Four elements of blockchain:
- Distributed ledger. Decentralized peer to peer network with a distributed database.
- Consensus. Transactions verified via consensus process consistent with a single version of the truth.
- Cryptography. All transactions are secure, authenticated & verifiable.
- Smart contracts. Legal logic translated into computational logic.
How this can be used in insurance:
- Smart contracting. All parties that need access to the insurance contract have it.
- Smart data. All parties in the transaction have access to current and accurate information about the risk.
- Smart execution. All the compliance issues are handled in a single place. This insures compliance issues are addressed properly across different states and nations and that all of this documentation is readily available.
Today, we have a “man in the middle” problem. The person controlling the central ledger (often a broker) knows every detail on every transaction, but all the parties in the transaction are dependent entirely on that person for information. Under blockchain, all the information is in a shared online platform where all parties have access to it. This reduces the friction associated with risk transfer. There is no dispute over whether a premium was paid, a contract signed, an endorsement added, or a claim reported. All of that is updated real-time in the shared ledger.
Another advantage of blockchain is that it will allow for greater access to insurance markets and allow those markets to better understand and price the risk.
Opportunities for blockchain in insurance:
- Allows for better sharing of medical records in a private, secure platform.
- Claim auto validation.
- Synchronizing multiple parties involved in a contract.