Blockchain, as an emerging technology, has captured the attention of many industries. The ability of this technology to create distributed ledgers and de-centralize, has opened up several possibilities. Insurance industry, across the globe, has been on the look-out to see if blockchain can provide the technology support to address the challenges it faces.
What makes insurance operations suitable for blockchain technology ?
· Insurance industry processes are spread over multiple organizations. For example, a proposal (application) would originate from a client and move through an intermediary to the insurance company. The insurance company may want to share the risk information with co-insurers or reinsurers who would be sharing the risk. Proposal data would be essential for risk assessment, if a pre-acceptance risk inspection is required. The risk data would need to be captured and shared with multiple entities during the process of insurance placement. In other processes also, there would be similar situations where multiple parties are involved. So, it is an essential requirement of the industry that trust-worthy data is made available in a secure fashion to different legal entities during a business process run.
· Insurance business is run as a “contract-based operation”. At the heart of the business is an insurance contract which determines the relationship between the insurer and the insured. All the processes and transactions emanate from this contract and are driven by the terms and conditions of the policy.
· Insurance is an information-driven industry. The products, pricing, market placement, distribution, risk management and many other aspects of the industry are controlled by the information which can be generated out of the risk and transaction data. Hence it is absolutely critical for the industry to have trust-worthy data on which the business can be built on. The typical difficulty is that this business data is created and expanded as the process moves across various entities. So, an easy mechanism to share data without compromising on integrity is always a matter of keen interest for the insurance industry
· Insurance contracts, claims and reinsurance transactions may be spread over a long period of time. It is essential that the integrity of data is maintained over this period, with multiple entities consuming the information and adding to it. The industry is keen to have a platform that will provide this much needed ‘trust’ and ‘ transparency’.
What makes blockchain technology suitable for insurance industry ?
· Dis-intermediation and de-centralization : All insurance transactions require a high level of trust and confidence. Blockchain can help achieve this in a “dis-intermediated” and decentralized environment. That capability changes many constraints faced by the industry owing to its centralized nature.
· Immutability : Blockchain can provide an environment where data cannot be easily changed or manipulated. The ability of blockchain technology to make it nearly impossible to manipulate data that is once inducted into the system, makes it ideal for transaction intensive and long-term insurance products.
· Transparency / Trust : Many insurance transactions like claims require data to be made available (transparent) to multiple entities. Blockchain technology can provide the mechanism to create trust without the need for intermediaries to be involved.
Most insurance markets, having realized the capabilities of blockchain, are in the early stages of identifying the right opportunity within the business value chain for utilizing the strengths of the emerging technology.
