What is the buzz of the blockchain in insurance?


Anyone involved in the financial services industry is sure to have heard of blockchain. However, despite the popularity of the term, many insurance professionals have only a vague idea of ​​how it works.

To give a clearer picture of how the emergence of blockchain will affect in particular the insurance industry and brokers, Insurance business spoke with Bundeep Singh Rangar, founder and CEO of PremFina, a London-based premium solutions provider for insurance brokers.

"The best way to understand blockchain is to counter it with email, which involves an exchange of content," said Rangar. "If a person sends an email, the sender and recipient both have copies of the same content.

"Blockchain, on the other hand, registers an exchange of value: A person can not keep a copy of £ 100 if he is transmitting this value to someone else.The blockchain, therefore, records a negative accounting entry from the sender and a positive for the recipient. "

Blockchain is an example of distributed ledger technology. According to Rangar, rumors about the blockchain are recorded on a ledger distributed on millions of computers.

"Blocks are a collection of transactions that are grouped together, recorded together and encoded using an algorithm called a hash," he said. "This block transaction register is transparent, verifiable and immutable."

One may ask: "If every transaction is recorded in the distributed ledger, will the amount of data not quickly become absurd?" Rangar explained that the blockchain uses hashing to efficiently remember transactions without having to go through the entire history.

"Hashing provides an efficient way to archive data and also record and track previous transactions that have been made so far," he said. "The input is a whole set of transactions that have taken place so far, so the new transaction recorders have to remember only the hash itself and not all the transactions that took place in the past. budget of a previous year used as the initial balance in a new financial statement. "

Blockchain, when applied to insurance, will settle various transactions during the insurance process – from the payment of the premium to the payment of claims.

"Insurance is essentially a set of calculations and financial transactions," Rangar said. "An insurance premium is the cost of underwriting an actuarial risk calculation: the sale of insurance to end customers and the financing of insurance premiums through investors all involve a set of transactions for value exchange.

"By following the above description of the blockchain, these transaction processes can be automated, simplified and made much more time and economically than those currently used, and by using smart contracts that are incorporated into blockchain, which involves automatic payment of credits once certain conditions are met, some parametric compensation claims can be processed and paid without much, if no human intervention. "

Rangar has advised brokers to adopt the blockchain that they can start by using it on board their customers or for paying premiums.

"For the former, new modes of execution know that customer audits (KYC) are developed using the blockchain that should reduce costs and, above all, fraudulent claims," ​​he said.

"Secondly, certain parametric insurances resulting in flight or train delays, harvests, marine insurance and weather conditions, have the prospect of immediate and cost-effective agreements, since requests can be automatically verified on the blockchain and on payments made immediately via smart contracts. "

According to Rangar, PremFina embraces technologies that make insurance business processes more efficient.

"To the extent that the blockchain allows for a quick and efficient settlement of payments and collections, we plan to use it to process payments and to finance the cost of premiums," he said. "Insurance financing can be sold through tokens, which represent the fractional ownership of the risk-adjusted financial return attached to credit agreements, and Blockchain can make the process of issuing credit agreements more efficient, the collection of monthly installments and financing of such financing can make premium finance a more widespread product in the UK and elsewhere.

"This is only the beginning.There are many other applications and platforms under development that can be seen among the new blockchain and insurtech start-ups".

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