Blockchain Technology: Does It Have The Potential To Innovate The Insurance Sector?
As some industries are feeling the full disruptive power of blockchain yet, there’s a little doubt that this much-hyped technology has the potential to fundamentally change the global economy. The worldwide spending on blockchain technology is forecast to more than double and reach $9.7 billion by 2021.
The use of blockchain and distributed ledger technology is likely to shift parts of the centralized model now used by a range of businesses to a distributed or decentralized model, where the underlying technology itself serves as the trusted authority. Using a permissioned blockchain, industry competitors could securely share data with one another, while abating duplicative efforts, minimizing reconciliation issues and reducing costs.
Every industry stands to undergo major disruptions with this shift, including the insurance industry. But until now, blockchain’s influence on the insurance industry has been largely contained to the C-suite, as executives debate which consortia to invest in and how to incorporate it into the business, and to IT teams, who are busy learning more about its potential.
That is changing quickly. Blockchain applications that can transform and automate countless traditional processes are getting ready to launch. Opportunities to leverage blockchain to save time and money are about to be introduced to the insurance world. With every corner of the industry primed to be affected, it’s crucial for everyone to understand how blockchain works and how companies are planning to use it.
Here are a few things we all need to know.
1: Blockchain is much more than bitcoin, but the bitcoin story has value.
Plenty of people confuse blockchain technology with its most popular application to date: bitcoin. Bitcoin is just one of more than 1,800-plus cryptocurrencies, and cryptocurrencies are just one of the countless blockchain applications. While blockchain has much broader potential, understanding how cryptocurrency works offer a good introduction to the fundamental principles behind the blockchain.
After all, bitcoin is where technology began.
In a cryptocurrency transaction, one party can use a unique, private identifier (or key) to send currency to a second party. In some ways, it’s as simple as email. As long as you know the other address, you can send to them. But the power of the blockchain makes this transaction secure. Verification is decentralized, so anyone on the network can confirm the transaction. But the identity of both parties is private. Simply put, it eliminates the need for a bank to verify the transaction.
2: Smart contracts are ideal for the insurance industry.
Cryptocurrencies like bitcoin offer a good overview of how blockchain can work, but smart contracts may have a more immediate impact on the insurance industry, driving fundamental changes across the entire value chain of products, pricing, and service.
A smart contract could be programmed, for example, to support the flow of information on a claim from the insured to other parties, including agent/broker, carrier or other third parties. It could even allow for an exchange of information on the claim between two carriers whose claimants are involved. Creating a more efficient flow of information could help drive efficiencies that would benefit the consumer and the carrier alike.
3: Blockchain applications are already having an impact.
Many insurance companies are already testing and implementing blockchain applications in search of a competitive edge. And just to state an example, consortiums like The Institutes|RiskBlockTM Alliance are writing the rules for how the industry as a whole will tackle blockchain technology. In just one year, 31 major insurance companies have signed on as members, seeing great opportunity in the non-profit consortia’s use cases that offer some of the first tangible blockchain applications.
Blockchain know-how is becoming a growing industry imperative.
As the insurance industry grapples with how to collaborate and compete with growing blockchain applications, employees must find their role. According to new research from the Boston Consulting Group, predicting that blockchain innovations could create $200 billion in the additional technical margin in the P&C market alone, it’s hard to imagine a scenario where blockchain won’t affect a variety of insurance and risk management roles. It’s likely to modernize how customers, brokers, carriers, and reinsurers engage with one another and may change many employee roles and opportunities.
As with game-changing technologies of the past, the employees best positioned to survive and thrive in the blockchain-powered insurance industry are the ones who understand how it works and what it means for their careers.
The first step in doing so is finding the right education partner. The Institutes has just released the industry’s first blockchain education course for all risk management and insurance professionals. Blockchain and the Insurance Industry, an online, certificate course, zeroes in on what insurance professionals need to know about blockchain’s underlying technology and how its impact on the insurance industry will play out.