Claims On-chain: How Blockchain is Changing Insurance

by: Ronnie Kher, Kevin Rutter

What questions do we address in this insurance in blockchain series?

• Where should you focus in the next 1-3 years?
• How are R3’s partners driving change across insurance?
• How is Corda uniquely positioned to meet the data privacy (video) requirements of insurance?

What is new about blockchain technology?

Blockchain technology allows insurance firms a new way to coordinate information between each other, by using a pre-agreed technology solution, instead of a third party’s bookkeeping. The technology enables different firms to set rules over particular insurance assets or contracts within a shared platform environment.  

Further, if a blockchain has the right data privacy architecture in place, each insurance firm can maintain the same amount of control over their data as today, but with more flexibility with the data.  In this way, blockchain technology builds upon a greater trend towards cloud-based open “platforms” at the industry-level and moves away from inefficient walls that impede efficient transacting.

What problems are solved by blockchain technology?

While on a business front insurers have been innovative across property and perils, the supporting technologies and infrastructure remain anachronistic and inefficient. The costs of the fragmentation and inefficiencies within insurance are well documented:  

• Inaccurate, disparate sources of data acquisition that lead to long underwriting cycles.
• Inaccurate risk profiling.  
• Inefficiencies and extensive manual intervention exist across the insurance value chain ranging from contract placement to claims settlement.
• Archaic billing systems and complex billing processes lead to high reconciliation costs.
• Increased litigation risks due to ambiguity in loss conditions, assessment procedures, and claim settlement delays.
• Stringent and dynamic regulatory requirements impact several areas ranging from renewal decisioning to claims assessment.

Blockchain technology is not a panacea that magically solves all of these problems, but with the right architecture a platform can address and reduce these inefficiencies.  

Additionally, insurance firms should continue to address changing consumer preferences. A small business owner today expects the same customer experience when buying insurance as when shopping on Amazon, while expecting the cross-sell opportunities provided by American Express.  There are also new revenue and growth opportunities in cutting edge industries such as cyber insurance that blockchain technology will help enable.

What are today’s “killer apps”?

Insurance is a traditional industry with origins dating back to 1450 BC. It often sits on the sidelines during periods of innovation. We see the blockchain space evolving first with relatively “easy wins” requiring minimal regulatory involvement or interaction with nascent technologies like the Internet of Things (IoT). These first use cases over the near term (1-3 years) will generally aim to lower expenses.  We see the following use cases gaining traction as more applications continue to go live:

• Contract placement to reduce dependencies on legacy document storage applications (Capgemini)
• Intra-company technical accounting and settlement to reduce reconciliation costs and times (see our research paper, co-written with ChainThat)
• Smart contract based claims triage for events requiring minimal claims triage such as pandemic reinsurance to save on claim adjudication expenses  (see our March Insurance Newsletter)
• Trigger-based billing and invoicing to work towards legacy decommissioning of billing systems / save on integration efforts of policy, billing and claims systems (ChainThat)

In the longer term, we expect innovation across the wider ecosystem to develop alongside complementary technologies like IoT and artificial intelligence.

Conclusion

Blockchain technology offers great promise across many avenues. This is the first of several  blog posts on blockchain’s impact on insurance.

We will articulate use cases across the insurance value chain while explaining why Corda’s architecture and design for a universal, interoperable network often will be the best fit, if the effort intends to go into production.  Blockchain technology can add value to many insurance business segments — commercial & specialty insurance, life insurance, personal lines and health insurance, along with niche areas like marine and trade credit.  

Further, insurers are increasingly taking charge with both formal and informal industry consortia around the world. Most major insurers have an innovation lab internally and insurers are actually taking the lead in terms of live blockchain apps, great news for an industry looked upon as backward.  Blockchain technology promises to be the right grease for the insurance innovation wheels.

How can you get involved?

1. Questions? Want to partner with us on an insurance use case?  Email insurance@r3.com,
2. Join our development community https://www.corda.net/develop/, become Corda certified, and attend our training.
3. To co-write or peer review our insurance Research, email research@r3.com, and visit https://www.r3.com/insights/ to download papers and subscribe to our newsletters.
4. For the next post in the series, follow us on Twitter https://twitter.com/inside_r3 and Linkedin https://www.linkedin.com/company/r3cev-llc/, or check back on The Latest.