As some of the major insurers begin to deploy blockchain, the potential for it to transform the insurance industry is massive. Blockchain is a series of data that is not owned by any single entity and consequently can pass from one party to another safely and without risk of being altered, with all other members being aware of the change and validating it. However, blockchain is swiftly becoming much more than a buzzword, as it begins to simplify the process of taking up insurance policies, consequently improving the experience for both the insured and the insurer.
The challenges the insurance industry face could be drastically reduced with the assistance of blockchain technology due to its potential to create systems using advanced cryptography that are virtually impossible to corrupt. As a result, there is less room for error, and greater opportunity to detect fraud. For instance, in recent months, this innovative technology has gained significant momentum as it becomes utilised for flight delays and lost baggage claims.
HOW WILL BLOCKCHAIN AFFECT THE INSURANCE INDUSTRY?
Undoubtedly, there is a sense of urgency to adopt the advantages of blockchain, as those firms that side-line these opportunities risk missing out. As Anthony Elliott, Group Head of Business Transformation at Zurich explained earlier this year, one firm “can’t transform the insurance industry on its own, and the distributed ledger that blockchain represents is only really useful if it is fully distributed across the industry”.[1] As a result, firms need to recognise the benefits of blockchain for managing and mitigating risks, streamlining subrogation, and providing a more transparent claims process. The more firms that work together and utilise blockchain, the greater the value for everyone involved.
However, it appears a number of global insurers, including AXA, Allianz, Munich Re, Swiss Re, and Zurich are beginning to recognise that blockchain technology can create transparent operations built on trust and stability, and as a result, have joined B3i, a start-up working to use blockchain technology in the insurance industry. This has illustrated a major step away from the arguably outdated, legacy processes that continue to operate as the status quo today.
Blockchain has recently been spoken of in relation to ‘smart contracts’, a set of conditions which bind the insured and insurer so that transactions automatically trigger when certain conditions are met.[2] For instance, if a flight is delayed or cancelled, a smart contract can generate an automatic payment to the policyholder.
The Association of British Insurers (ABI) revealed that 469,000 fraudulent claims were detected by insurers in 2018, with the average insurance scam costing £12,000.[3] Blockchain has the ability to significantly reduce this figure due to its ability to detect, and subsequently prevent any fraudulent activity. For example, if multiple sources report that the flight departed on time, the insurance company can expose claims made by a fraudulent individual and pay only those with valid claims.
Finally, these ‘smart contracts’ have the ability to streamline the process for both parties, reducing the amount of paperwork and electronic forms that need to be completed, and increasing customer satisfaction and reducing the extent of manual administrative processes.
HOW WILL BLOCKCHAIN AFFECT THE JOBS AVAILABLE WITHIN INSURANCE?
Whilst blockchain presents a number of opportunities for the insurance industry, it is possible that in the future the market will face very strong competition from those companies who are forward-thinking and implementing blockchain into their programmes and policies. Certainly, the customer will desire the safest, most convenient and most cost-effective option, and the internet and blockchain present a great opportunity to provide this.
It is thought that the relationship between brokers and underwriters will be maintained and connected through the usage of online contracts, and whilst these roles are unlikely to become void, those entering the insurance industry will most likely need to be able to understand and make use of the benefits of blockchain. Additionally, hiring the correct, tech-savvy individuals is critical, as pressure will grow to ensure the coding is accurate, and poor or incorrect coding could cause a whole host of problems for both the company and the customer.[4]
However, whilst there will be an increase in opportunities for those who understand blockchain in the insurance sector, it is predicted that the demand for Claims Adjusters will be reduced due to the increase in smart contracts outlined above.[5] As a result, firms must ensure they are hiring strategically and with the future in mind.
Although the exact future of how blockchain will disrupt the insurance market is not yet certain, firms must begin to envisage how they will deal with the potential changes outlined in this article. It is crucial that companies stay up to date with major technological changes, and move away from outdated and traditional processes.
For discussions surrounding new technology in the insurance industry and how Eames Partnership can support your journey, please get in touch.
[1] Zurich, ‘The Growing Role of Blockchain in Insurance’, 2019
[2] KPMG, ‘Blockchain in Insurance’, 2018
[3] ABI, ‘Detected Insurance Frauds in 2018’, 2019
[4] Insurance Business, ‘How will the Blockchain Affect the Insurance Sector’, 2018
[5] Block Social, ‘How Blockchain Will Affect the Insurance Industry’, 2019