Is blockchain really a solution in search of a problem? At first glance, it may appear that way. Aside from developments in the industry loss warranty (ILW) market, clear use cases have been slow to emerge. That’s largely because blockchain innovation has focused on smart contracts that use of an independent third-party as the ‘oracle’, often overlooking some of the other ways this new technology can benefit the global insurance industry.
With that in mind, let’s take a look at four killer use cases for blockchain in insurance:
1. Alternative risk transfer: Let’s start with ILWs, catastrophe swaps, and other risk-transfer instruments just to get them out of the way. This is the use case that’s received the most attention and has been tested in the market. Index-triggered contracts certainly stand to streamline the risk-transfer process for both reinsurance and retrocession, and if sufficient cost efficiencies are attained, they may even bring such covers back into vogue, despite the abundance of capacity available in the global insurance and reinsurance market right now.
2. Complex commercial claim handling and settlement: Insurance enterprise systems remain heavily influenced by the manual processes they were sought to replicate. Automating manual activity can lead to incremental increases in operational efficiency, but they sacrifice the possibility of truly transforming a business to fully capitalize on the capabilities of the technology they adopt. Think about simple problems that can have profound implications in the commercial claim management space—problems that arise nearly every day. A disagreement about when a phone call occurred or what the latest data in a valuation assessment contains can drastically extend life cycles and result in considerable increases in costs. Having a permanent, reliable ‘single version of the truth’ could help prevent such circumstances from even occurring. And the benefits to commercial claim management could be applied to layered traditional reinsurance as well.
3. Internet of Things (IoT) insurance cover: There’s certainly a movement afoot around connected homes and automobiles when it comes to claim reporting, handling, and payment. Connected devices could identify a loss event and report it to the insurer before the insured even knows about it. For example, if the sprinklers in a home are activated, the loss is assumed to be of a certain magnitude based on readings from water sensors and data indicating how long the sprinkler was active. What follows could range from fast-tracked claim payment based on IoT data—potentially before the insured is even aware there’s a loss—to the judicious deployment of a claim handler to validate key details of the loss and ensure that there are no inconsistencies or improper claimant activity (such as device tampering). The cost and duration of the claim life cycle could decline profoundly.
4. New types of insurance protection: The combination of blockchain and smart contract features could change how even consumer insurance products are bought and sold in the coming years. Still something of an experiment in the primary commercial insurance market—talk of parametric covers has gained momentum in recent years. Parametrics could be adapted to cover property damage through the use of IoT technology, with fixed payments based on certain damage readings. And in the commercial market, parametrics could solve problems ranging from catastrophe protection to terror or cyber cover. Non-underwritten products—tightly integrated with the blockchain for policy administration, claim handling, and ultimately payment—reduce overheads at nearly every point in an insurance company’s operations, resulting in the potential for significant margin growth in even the most mature markets.