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Blockchain For Insurance In 2019: beyond the back office
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While the research for the modernization of the banking sector was an important stimulus for the growth of the business blockchain technology, the insurance sector had traditionally not had such a healthy appetite for change. That is, until now.
In the last two years, insurers have moved away from their conservative image, exploiting several emerging technologies, including blockchain, to rethink their current business models. One of the most significant technologies that drive this digital transformation is the blockchain that is optimizing back-office processes and systems. By the end of 2019, insurers are accelerating their use of the most innovative cases of the use of blockchain business technology.
Laying back-office blocks
Insurance companies face a complex network of challenges in today's market. Regulatory requests increase; fraudulent claims are common and the flow of data is constantly increasing. Meanwhile, while digital technology permeates the financial services industry more broadly, customers expect a level of innovation that is higher than ever before.
Despite the growing demand for tailor-made products and services, insurers have recognized that, in order for the transformation to be sustainable, it must start in the back office. Legacy systems combined with patchwork solutions have perpetuated a closed insurance information environment with data silos and consequent operational inefficiencies. Building digital solutions for customers on these crumbling bases would have disastrous consequences.
That's why insurers have been working hard behind the scenes for the past two years, implementing corporate blockchain platforms at the forefront of renovating and modernizing their back offices. Integrating even the core technology can have a huge impact on the transparency, stability and efficiency of a company.
By taking the first step in moving its transactions to a shared ledger, an insurer can potentially eliminate fraudulent and duplicate claims by registering each transaction in a decentralized repository. Immediately, an insurance company is able to verify the authenticity of a client, a policy or a claim. This is a simple premise but a huge step forward for the industry.
In addition, with the advent of the Internet of Things (IoT) and connected devices, blockchain provides an efficient and secure way to manage, share and exploit an ever-increasing amount of data. Business blockchain platforms specially created as Rope overcome the challenges of traditional public blockchains by ensuring that sensitive data is shared only with the parts that need to see them in every instance.
The potential gains in efficiency for both the insurer and the insured are dramatic. Consider, for example, a reinsurer, an insurer and a broker that consolidates the data of its policies and stores it on a blockchain: the subscription and subscription process could be reduced by weeks or even months to almost real time, without charges for each entity to collect, reconcile and present documents.
These important advantages of blockchain technology are now being implemented across the global insurance industry, with forward-looking initiatives such as RiskBlock Alliance and B3i that harness the power of collaboration to drive adoption and implementation.
Turning to a model in which disparate parties like insurers, reinsurers and brokers can share and store policy information cryptographically, industry has laid the groundwork for the next blockchain-based innovation phase.
A convergence of technologies
Insurers are keenly aware of the need to evolve to remain competitive, and the rationalization of market operations with blockchain technology is freeing up precious resources and resources previously spent on audit and administrative costs.
The newly created roles as Chief Digital Officer and Chief Innovation Officer are now common throughout the industry, with companies looking to increase their market share by developing solutions that meet customers' demands for innovation while increasing efficiency and profitability. Once the data has been migrated to a blockchain platform, the potential to apply other technologies such as artificial intelligence (AI) to use this immutable information in real time is enormous.
Dynamic pricing is an example of an emerging blockchain innovation that benefits both the insurer and the customer, with ample potential in terms of health insurance, car insurance, property insurance and beyond.
Taking into account shipping insurance, advances in technologies such as artificial intelligence and telematics allow insurers to access detailed, real-time information on the location, age and conditions of a ship. This means that if a ship enters the waters of the pirates, location data will automatically be updated on the blockchain and the insurer can make the necessary changes to its risk profile and the price of the policy. The same applies to the reverse scenario, for example if a ship is young, in good condition and does not move away from safe waters.
Now consider that the ship carries chilled goods, which is also insured. How does an insurer know if a temperature peak is occurring in a sea crate thousands of miles from its destination that could potentially destroy the load? Thanks to telematics, sensors in containers can communicate accurate information on temperature, humidity and atmosphere.
This information can be updated in an intelligent contract on a blockchain platform in real time, allowing an automatic payment to the customer if the load is ruined by high or low temperatures. This saves the insurance company time and money while providing a better experience.
Dynamic pricing also has enormous potential in the health insurance space. Health insurers require a large amount of information about a client's medical history and lifestyle in order to put together a policy, and the provision of false or inaccurate information is common. Blockchain allows insurers to accumulate data from multiple verified sources with real-time updates, allowing them to perform more frequent risk assessments and customize prices accordingly.
Usage-based insurance (UBI) is another innovation that is reshaping the auto insurance industry. Many machines now have connected features or advanced driver assistance systems (ADAS), which is having a profound impact on how auto insurers manage policies.
Traditionally, auto insurance policies have been based on driver characteristics such as age, personal information and accident history. With UBI, insurers are able to incorporate driving behavior data such as speed and abrupt braking that are updated in real time on the blockchain. In addition, in-vehicle telematics technology can measure the time a driver spends on the road every day, opening up opportunities for pay-as-you-drive insurance policies that incorporate this data into a smart contract.
A digital future
These developments would be innovative in any industry, but considering that the processes underlying the insurance industry have remained largely unchanged for hundreds of years, the evolution is even more dramatic.
By leveraging blockchain attributes to address back-office challenges, insurers made the necessary investment to position themselves to exploit the myriad opportunities and additional efficiencies that the blockchain – and its convergence with other new technologies – will provide beyond the next few years.
2019 will undoubtedly see the insurance industry enter the next phase of its digital transformation, and we are proud to play a steady role in promoting this innovation with the launch of the first R3 Corda InsureTech Challenge.
The competition is open to all blockchain startups and to strategic and strategic investment arms of insurance companies, with the best finalists who will have the opportunity to demonstrate their solution to the CordaCon of next year, which last year had 1200 participants and should double in 2019. Visit our website today to find out how your team can be involved.
