In 1985, I started my insurance career in the marketing department of a multi-line insurer, which included P&C and Life. Part of my responsibility was to deliver technology to field offices to speed up quotes.
I assumed that quoting on the Life side would be more challenging than P&C, what with the premiums driven by complex actuarial formulae (these were days of Universal and New-Money products).
I was wrong.
The factors for P&C rating and issuance were almost as complex as the life products. In addition, the rates varied by location and changes came frequently, sometimes to match competitors; other times coming from regulators.
To make matters worse, third party rating systems – and the generated quotes – were frequently wrong. The underwriters had to make the change and advise the agents who had to counsel customers (frequently with higher prices).
But this has been fixed, yes?
The answer is a definite ‘perhaps.’ Granted, we have better computing devices and electronic linkages between insurers and agents/brokers. But the idiosyncrasies for risk selection and product pricing have become more complex (think Usage Based Insurance underpinned by Artificial intelligence).
And this is where the blockchain could show value.
The consensus (Wikipedia) definition of the blockchain structure is as follows:
A decentralized, distributed and public digital ledger that is used to record transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks and the consensus of the network.
At present, ‘could‘ is the operative word. The vast majority of blockchain usage comes from crypto currency (e.g.,Bitcoin). The Economist explains that the blockchain replaces trusted third parties:
A database that contains the payment history of every bitcoin in circulation, the blockchain provides proof of who owns what at any given juncture. This distributed ledger is replicated on thousands of computers—bitcoin’s “nodes”—around the world and is publicly available.
And, in spite of all the openness, the blockchain architecture is considered both “trustworthy and secure.”
How does the blockchain fit with insurance?
In March 2018, CB Insights provided what amounts to a business case for the blockchain in insurance. Noting that insurance purchases are still handled by phone for a large chunk of consumers, they write:
Each step in this collaborative process represents a potential point of failure in the overall system, where information can be lost, policies misinterpreted, and settlement times lengthened.
On the positive side, CB Insights notes that insurance is a top contender for exploiting the blockchain for:
- Fraud detection and risk prevention
- Orders of magnitude efficiency improvement in P&C
- Sharing medical records securely for Health insurance
- Simplifying flow of information for Reinsurers
Where is the chorus of screaming users?
CBInsights suggests that regulatory and legal hurdles will be major stumbling blocks. However, my personal opinion is that government and industry associations are moving decisively to support digital transactions.
So what else is holding us back with the blockchain?
Why? Simply put, there are few successful blockchain stories and even fewer inusrers who are willing to take a run at implementation without some indication of success. The insurance community has a large range of connections between reinsurers, insurers, agents, brokers, MGAs, regulators, third party information providers, etc.
The main players – insurers and distributors – have experimented with (and, in some cases, implemented) digital connectivity since the late 1960s. There are few widespread successes.
That said, Joshi believes that the blockchain will be important technology: “Blockchain technology is still evolving but holds long-term promise to transform business across industries.”
If you are starting, or starting to start, Joshi has wise words of wisdom:
Don’t expect miracles. Treat blockchain like any other emerging technology that is an enabler for your business and watch the market carefully until it takes off. Let me assure that you have not missed much if you did not start experimenting with blockchain in the last 18 months.
What do you think?
The blockchain is one of several major shifts in technology to manage the digital insurance environment. What’s working for you? Whatt are you waiting for?
Insurance-Canada is developing several events for the balance of the year, including: