United States: Blockchain Will Change The Insurance Industry

Last Updated: May 23 2018
Article by Daniel S. Marvin

When the internet started to gain widespread commercial use in the early 1990s, few could have predicted the massive shift that it would have on our lives. Its power has been harnessed in just about every corner of industry and commerce, significantly improving the flow of information in many respects, while at the same time, creating a host of security and privacy issues. Now, a new technology, which sits atop the internet, has the ability to cause a seismic shift in how we interact with data, and will most likely meaningfully impact virtually every person and industry. Blockchain has been called, "transformative" "and "revolutionary" for good reason. And perhaps no industry will be better able to leverage its benefits more than the data driven insurance industry.

In its simplest terms, Blockchain is a way for people to immediately share trusted information over a peer-to-peer network without a central administrator. If and when this technology is implemented effectively in the insurance industry, many manual tasks, such as claims processing, will become instantaneous. The time needed for the underwriting of everything from auto insurance to life insurance to property insurance could be reduced to virtually real-time. Immense volumes of data will be shared amongst insurers in a way which did not seem possible just a few years ago. For many, understanding the technology behind Blockchain is daunting. But just as most people who use the internet do not fully understand the technology behind it, one need not fully understand the technology behind Blockchain to realize the significant impact it can have. However, let's try to understand what Blockchain is, and its potential impact, in a way that most of us can relate to.   

Let's say that five companies wish to share information, on an ongoing basis, of all transactions that they enter into with the same third-party. What would that process look like today? Well, an employee of company one might enter their company's transaction information onto an Excel spreadsheet (a ledger of transactions) and send it along to company number two, who would do the same thing, and pass it along to company three, and so on. Every time one of the five companies had a new transaction to enter, it would have to request that the master spreadsheet be sent back to it from whomever had it so that data could be inputted. That process would quickly become slow and inefficient. Now, imagine that instead of five companies, 50, 500, or 5,000 wished to track such information, and that the information consisted of millions of transactions. The process has now gone from inefficient to virtually impossible, and the problems are obvious. First, only one user could control the spreadsheet at any one time. Second, a rogue employee or other nefarious actor might change data on the spreadsheet without the other parties knowing. And finally, the spreadsheet would always have a single point of failure, meaning that if the computer of the company that had the latest version of the spreadsheet were destroyed, so too would be the spreadsheet.

In essence, a Blockchain is just like our spreadsheet – it is a digital ledger of transactions or records. Except unlike our Excel spreadsheet, this ledger exists in real-time, and synched in duplicate, on every participating user's computer, whether it be five computers, 500 or 5,000. To create the ledger, our employees would use an App or web interface to set up a private Blockchain (otherwise known as a permissioned network), meaning that an invitation is needed to join. Once joined, each member of this private Blockchain would have a private encryption key (think password but stronger) that they would input on the App or web interface in order to gain access and enter their transaction information. The network of other computers in this Blockchain would verify the information came from a valid user (using a public encryption key which is associated with the employee's company), and once verified, the transaction information (called a block) would be added to the ledger (called the chain) which exists on every user's computer. All new entries on our employees' Blockchain would be timestamped and electronically linked to prior transactions using sophisticated cryptographic algorithms, ensuring that the data could not be tampered with, and that the record is absolute and irreversible.

Importantly, since this chain of information exists in duplicate on every computer in the network, it has no single point of failure, unlike the Excel spreadsheet noted above. If a hacker tried to alter any information on a single copy of the Blockchain ledger, the network of other computers will reject the alteration as inconsistent. Thus, in order to tamper with this Blockchain, a hacker would have to hack every encrypted transaction in the chain on every disconnected computer on the network at the same time. Doing so would be impossible. Our employees now have an incontrovertible, irrefutable and real-time record of all transactions which they can view at any time. No central authority is needed to input, verify or maintain the information.

The keys to Blockchain are that it is peer-to-peer, encrypted and eliminates the need for a middleman to verify transactions. So, musicians can share (sell) music on the Blockchain without the need for music companies; passengers can connect with a driver on the Blockchain without the need for Uber; contracts can automatically execute without the need for lawyers; and as we have seen, individuals are able to share digital currency on the Blockchain (Bitcoin) without the need for banks. The implications for the use of this "middleman-less" technology in the insurance industry are huge. While we will explore these implications in-depth in future newsletters, here is a brief summary of some of them:

Smart Insurance Contracts

Smart contracts have the potential to be more game-changing than perhaps any other use of Blockchain technology. A Smart Contract is a self-executing piece of computer code containing contract terms that is stored in a Blockchain, protected from alteration or deletion and automatically executed once certain contract conditions are met. These contracts have a wide range of uses in the insurance industry. For example, AXA Insurance recently introduced a flight delay insurance product, called Fizzy, that uses the Ethereum Blockchain to store insurance information and process claims. Customers can use Fizzy to insure their trips if their flight is delayed by two hours or more. The Blockchain  stores a record of the insurance contract itself within a smart contract, and also serves as a vehicle for triggering the payment to the customer once the two-hour mark is passed. The entire process is done electronically and automatically, with no wait, no documents and no human participation. This type of parametric insurance can be especially useful in insuring against natural disasters, with payments being automatically made in the event of triggers such as earthquakes of a certain magnitude.

Fighting Insurance Fraud

One of the key ways to fight insurance fraud is through the sharing of information amongst insurers. It is in this area where the Blockchain can prove invaluable. While there are currently centralized (and vital) organizations in which insurers participate in order to share information, the Blockchain can significantly improve the volume of, and speed at which data can be shared.  In a paper entitled "Fight insurance fraud: data sharing with Blockchain technology," IBM set forth rather succinctly how the power of the Blockchain can be employed to fight fraud. While the entire paper is worth a read, the following excerpt is squarely on point: "By using Blockchain, insurers can create receipts at different points in the claims process, resulting in an immutable, auditable record of all claims activities, which can be revisited by all parties including the regulators. This could lead to lower transactional cost, lower transaction risk and trustless computation. These new technologies make it possible for a group of independent parties to work with universal data sources, automatically reconciling between all participants—customer, broker, insurer, co-insurer and reinsurer. All users could have a distributed, single view of the entire exposure data chain." As further noted by IBM, Blockchain may be useful in reducing fraud related to the integrity of a policy or claim or vehicle (or any asset). By maintaining the integrity of the asset through various owners, Blockchain technology can minimize counterfeiting, double booking, document or contract alterations.

Property, Automobile and Personal Articles Insurance

From everything from cars to homes to jewelry, the process of tracking and verifying changes in ownership can be time consuming and document intensive (think title searches for homes). Yet, such verification is vital for insurance. Enter Blockchain; with this technology, every piece of information relating to an item, including ownership, can be kept in an incorruptible and permanent ledger. In fact, a company named Everledger has already implemented this technology by placing 1.6 million diamonds on a Blockchain. Entries on this digital ledger include dozens of characteristics for each diamond, including, certificate number, weight and color. Everledger is using Blockchain to create a permanent, digital ledger of not only diamonds, but art and other valuable items, and is able to use the technology to provide insurance companies, claimants, consumers and other stakeholders with a verified and immutable record of an item's authenticity and ownership. This use of Blockchain can easily be applied to other types of items that insurance companies provide coverage for.

Life Insurance and Health Care

With Blockchain technology, the entirety of a person's lifetime medical information and records can exist in one place. An insurance applicant would merely provide their private key to an insurer, who could then immediately verify the authenticity of information. Insurance applications would be approved virtually instantaneously, a far cry from the 30 days or more it now takes with documents having to be assembled and medical providers having to be contacted. In addition, healthcare organizations can use Blockchain to securely create, and share, a comprehensive electronic healthcare record for all of their patients. Patients and other authorized users would merely have to provide their private key to give access to physicians and insurers in order to view the entirety of their health records.

It is clear that Blockchain has the potential to automate and streamline insurance methods which are currently being performed with old and outdated systems and, in the process, upend the entire industry. What isn't as clear is how long it will take for the technology to gain widespread adoption, though it is likely at least 10 or 15 years away. Nevertheless, those insurers and other stakeholders who begin thinking about some of these issues now will be ahead of the curve, and be able to help evolve and guide use of the technology, much as early adopters of the internet did. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions