The transition won’t be easy, but blockchain technology could benefit both insurers and policyholders.
While most often associated with Bitcoin, blockchain, the technology behind the digital currency, has far-reaching potential. For the global insurance industry, streamlining premium payments and claims processing is just the beginning. As a tamper-proof digital ledger, blockchain can be used to expedite decision-making, prevent fraud, lower administrative costs and myriad other possibilities not yet imagined, improving efficiency and transparency along the value chain. Insurers, along with many in the financial services industry, are scrambling to get on board.
In considering the potential role of blockchain in the insurance sector, the trust element is key. An insurance policy is essentially a contract, bound by promissory statements. Policyholders trust that their claims will be paid, and insurers trust that the aforementioned will not seek payment for claims that are fraudulent. The industry’s “doctrine of utmost good faith” obliges policyholders and insurers to disclose all relevant information. But in the current reality, trust in business institutions, particularly in the financial services industry, is in short supply.
Erosion of trust can be seen – and possibly ameliorated – along the entire risk transfer value chain. The result is a growing fault line in the industry’s foundation. Between underwriters, customers and brokers, there is a need for more trust, as well as greater speed and security. Blockchain technology could play a transformative role in the insurance industry by protecting financial, legal and other information from manipulation. This is data that, once part of the ledger, simply cannot be changed.
Bolstering trust and improving efficiency with a modernised system including, for example, a blockchain-based public ledger and claims validation network, could increase insurance penetration and adoption rates, minimising the levels of uninsured as well as the “uninsurable.”
If those who view blockchain as a foundational technology are correct, a transition to blockchain could be preordained. Who will be in the vanguard? According to Harvard Business Review, “demystifying a new, powerful technology is partly in the hands of industry bodies, such as the Global Blockchain Business Council, but mostly in the hands of bold leaders who see this tool not as a threat but as a source of competitive advantage, efficiency, and security.”
