Blockchain has been a buzzword in the insurance industry for a number of years now.
The benefits are clear for all to see. Smart automation, increased efficiencies, more accurate data tracking and the removal of unnecessary middlemen with data collated on a trusted platform that is accessible from anywhere – but only by the people you want to have access.
But despite these obvious benefits, practical applications of the technology remain few and far between.
It's easy to be turned completely off by the unremitting hype, and that would be a mistake, but a completely understandable one
Shân Millie, founder of consultancy firm Bright Blue Hare and a self-confessed “accidental techie”, says that the very nature of the blockchain industry means that it was always going to be hyped up in the early years.
But she says that people should not be turned off by the as yet unrealised potential.
“Very serious and clever people I know are very serious (and clever) about blockchain's potential, but it's noteworthy that the key idea remains potential,” she said. “Narratives in insurance and technology are frequently set by people whose business models require others to be excited above all else – like VCs, the tech press, events organisers and others – rather than focused on the necessarily less glamorous practicalities.
“It's easy to be turned completely off by the unremitting hype, and that would be a mistake, but a completely understandable one.”
Frank Perkins, CEO of Inari.io, has worked in the industry for close to two decades, and said that blockchain in the insurance industry has suffered from some of the overhyping of the technology in the early days.
“We have a problem in the insurance industry where it can be quite slow moving on one hand, but on the other hand a lot of people have come in making big representations around technology that haven’t really lived up to their name,” he said. “And we went through a cycle whereby you were able to raise lots and lots of investor money if you put blockchain in your project, and then it started to become a hammer looking for a nail and eventually arrived at the insurance industry.
“And it arrived without looking to solve a particular issue, but was rather looking for an issue to solve and saying wouldn’t that be amazing, if blockchain could be the solution.”
Now, however, Perkins said that blockchain has reached a plateau in the hype cycle, and this should lead to the emergence of some really productive and impactful solutions using blockchain in the insurance industry.
So if the hype is dying down and solutions are beginning to emerge, what are the areas where blockchain can have a real impact, instead of just being a hammer looking for a nail?
[Blockchain] started to become a hammer looking for a nail and eventually arrived at the insurance industry
Smart contracts is one area of the blockchain world that has been cited as a game changer for the insurance industry, with parametric insurance a particular area of interest.
“Where it gets really interesting is when you start taking payments in Bitcoin,” said ChainThat founder and CEO David Edwards. “You then set up the smart contract as defined by the parametric insurance and when that is triggered, payment is made automatically.
“That’s where it could go, but in terms of realistic use cases out there today, there aren’t many.”
Another area of blockchain relevant to the insurance industry is distributed ledger technology, which allows different parties to access a trusted and decentralized data repository to view, update or amend, with a complete history of all the changes maintained within that repository.
“Marketplaces are the kind of place where this fits really well,” Edwards said. “Where you have multiple parties – such as in the insurance value chain – that need to have access to the same information.
“In insurance today, everything is so inefficient with sharing data and double keying – everything just takes so long and you don’t even know if you are all looking at the same version, so there is no certainty. Blockchain can really help with all of that.”
Such technology could even spell the end of bordereaux, removing the need for any reconciliation altogether.
“The cost of co-ordination and the cost of reconciliation is huge, both in terms of financial cost and manpower,” Edwards said. “Whereas if you have a shared ledger, it is instant – there is no need for any reconciliation. Gone are the days of bordereaux and things like that that have been the bane of the insurance industry.”
But despite this potential, Millie said that “real-life stuff in action is still thin on the ground”.
“A stand-out example was the industry consortium B3i – the Blockchain Insurance Industry Initiative – until it folded in July this year, despite having successfully completed a blockchain prototype for property reinsurance contracts involving 38 insurers,” she said.
“And another blockchain poster child, flight delay smart contract platform Fizzy, was scrapped by parent AXA at the height of the pandemic in October 2020.”
But that doesn’t mean there aren’t any success stories.
To achieve something with blockchain people have to work together... so in effect you need competitors to work together.
“Insurwave – the 'world first' marine insurance blockchain platform that was a joint venture between EY and blockchain company Guardtime launched in mid-2018 – is still going, and winning awards,” Millie added.
But what is holding blockchain back from its doubtless potential?
Edwards said that one of the big issues is the level of collaboration that is needed to implement a blockchain solution.
“To achieve something with blockchain people have to work together,” he said. “So in effect you need competitors to work together. You need to have everyone on side and willing to commit and work together instead of trying to build every stage to their competitive advantage.
“But I don't think anyone's ever done that successfully, because everyone's always out for themselves – they always end up wanting their own competitive advantage.”
For Millie, however, the issue is all about trust. Just maybe not in the way you think.
“I think there's more at play here than simple business logic and even ability to execute,” she says. “In many ways I think the failure to launch is a great example of the social licence to innovate.
“If customers of all kinds already think that in insurance, the house always wins – which they do – what does it matter how efficient blockchain technology is in locking in information exchange and actions if those rules are still set by the house? You can't innovate without someone to innovate for and with. And that requires trust.”
Millie continues: “Normal humans define trustlessness as meaning not worthy of trust, faithless or unreliable. For blockchain, it's a technical term explaining the core USP: you do not need to place your sole trust in any one institution, or other third party in order for a network or payment system to function.
“Isn't it compelling how that human definition feels much more apt than the technical one in today's 'is Crypto dead?' frenzy, where all the potential in the world means nothing when compared to massive, real-world institutional losses and as yet unquantified retail customer damage?”
And until that nut is cracked, it could be very hard for blockchain to have any meaningful impact on the insurance industry. But get it right, and the potential is undoubtedly there.
