Blockchain Technology And Its Promise Disruption Towards The Insurance Industry
Overwhelmed by constant disruption and facing what has been a prolonged low-interest rate, low margin, and low underwriting return environment, insurance executives are worried. Everyone wants to know how to grow ahead of the market. Yet most are struggling to put together the `winning formula’ that will ensure profitable and sustainable long-term growth.
Getting comfortable with blockchain
Will blockchain be the `Big Transformer’? Blockchain has the potential to transform existing business models by eliminating the need for intermediaries. Even now, the impact of cat bonds on the reinsurance market is having unexpected consequences on direct insurers.
Claiming the benefits
Transparency and collaboration are key to efficient reinsurance transactions. But — when we take a hard look at the actual processes such as claims verification — they are often time-consuming, highly manual and risky. Duplication and errors are not uncommon.
Using blockchain would allow insurers and reinsurers to create a distributed ledger of their transactions, using a real-time, efficient, automated and secure solution tailored to the reinsurance ecosystem. This will help all players not only reduce costs and improve efficiency, but it also helps reduce overall exposure to losses.
Getting smart about risk
One of the more disruptive applications of blockchain is the development of `smart contract’ models. Smart contracts contain self-executing protocols that work with a blockchain to enforce the performance of a contract across all counterparties. Claims data is shared across all counterparties. Identities and contract provisions are immediately verified. Payments are automatically made. And, as a result, less adjudication and negotiation is required and costs are minimized.
An enabler, not a disruptor
We must be reminded though that these are still the early days of blockchain; things are just getting started. And more use cases are being developed each day.
And rather than a disruptor, we need to see blockchain as a potential transformative response to many of the challenges now facing the industry. And it can deliver significant improvements in efficiency, trust, and quality.
Embrace the blockchain
Insurance executives need to embrace the blockchain, not fear it. There is clear evidence it will help enable greater efficiency, growth and competitive advantage — creating significant commercial and economic value for the industry. We are seeing some of the most proactive insurers looking to blockchain to help drive their wider transformation agenda within the context of the `data-driven fourth industrial revolution’. These first and second-movers see the value in participating in the broader financial services blockchain ecosystem. But they also see blockchain as an opportunity to improve efficiency, lower the costs of transaction processing, enhance the customer experience, improve data quality, increase trust between parties and support auditability, among other benefits. Understanding the value and impact of other enablers, such as big data, digital labor and analytics will also be key to maximizing the value of blockchain investments.