Zane Morais, London School of Economics and Political Science
“Blockchain has the potential to kill the market and will create a radical shift in the industry”. These are the words of the Head of Strategy and Architecture at QBE Insurance Group Limited, Andy Hopkins. Given that the insurance industry is adapting to the new era of technology slower than most, Blockchain has the power to render conventional insurance obsolete. To understand how a piece of technology launched in 2008 is disrupting the modern world of insurance, we must delve deeper into what Blockchain technology really is.
Essentially, Blockchain is a digital ledger in which transactions and accompanying information are stored. Each block on the chain consists of various recorded transactions, and when these blocks are sent to nodes on the chain, decentralization occurs. This means that the digital ledgers are distributed among every member in the network, thus simplifying the process of checking and reviewing transactions. Although Blockchain technology appears complicated to use, the flowchart below indicates otherwise, detailing the core steps of the process.
Security and privacy are the pillars of blockchain, making it popular among some of the world’s largest banks e.g JP Morgan and Wells Fargo. The term Blockchain has become familiar to some, given that this type of technology forms the core of thousands of cryptocurrencies, boasting the likes of Bitcoin and Ethereum on its roster. While currently considered a niche market, the value of Blockchain technology is set to skyrocket by 2025, as illustrated in the chart below.
The Potential Impact of Blockchain in Insurance
Would you believe that a whopping 78% of consumers still call insurance brokers over the phone to purchase new policies? This statistic displays that the general public feel more comfortable calling a business over the phone about a policy in spite of the availability of online brokers. However, with this comfort, comes risk. Since the policy is processed in person, each step in the chain of events leads to additional risk because of one important factor – human error. This error can be almost completely eradicated through the use of Blockchain. Due to the distributed ledger technology, all parties involved in the Blockchain are able to oversee their transactions, making fraud detection that much easier. 5% of all insurance claims are fraudulent, and as a result, insurers are forced to bear an estimated $60 billion in fraudulent claims every year. With the introduction of Blockchain into more companies, this number could decrease drastically based on the strength of its fraud prevention system.
Rather than blacklisting the use of Blockchain out of fear, some insurance companies have proved that they can use it to their advantage. Customer engagements are an area that the insurance industry could stand to improve, and with Blockchain, customers can find comfort in the fact that their personal data is truly safe. Adding to this, a customer-controlled Blockchain can be implemented to remove the tedium of repeating details during identification verification. Another benefit is the sheer speed of this distributed ledger technology. An insurance claim that typically takes weeks for insurance companies to settle can be resolved in a few hours with greater accuracy via Blockchain. These features allow financial institutions that use the technology to save up to $12 billion a year due to increased efficiency.
Although established, I believe that the full breadth of Blockchain technology is yet to be explored. Some insurance companies have begun to realize the potential of digital ledger technology, but most remain fearful of embracing change. I hope that in the future, insurance firms and Blockchain can find a way to live in unison, as the alternative option could result in the industry being left behind as technology continues to advance.