This March, The Fintech Times is shifting its spotlight towards insurtech, exploring the potential impact of blockchain technology on insurance processes and its role in instilling trust in digital transactions.
Blockchain, the underlying technology behind cryptocurrencies like Bitcoin, has gained significant traction across various industries, including insurance, for its ability to enhance transparency, security and efficiency in transactions.
Here our selection of insurance experts weigh in on blockchain’s multifaceted influence in insurance. While some hail its potential to transform processes and bolster trust, others caution against its practicality within the sector’s centralised framework.
Transformative potential
David Derigiotis, chief insurance officer at business insurance company Embroker, highlights the transformative potential of blockchain technology in the insurance industry, addressing its ability to enhance transparency, efficiency and security.
“Blockchain technology at its core offers increased transparency, efficiency, security, and trust in all digital transactions. The real value is a decentralised and immutable ledger that records transactions across a network of computers. This transparency ensures that all parties involved in an insurance transaction have access to the same information, reducing disputes and fraudulent activities.
“Within DeFi (decentralised finance) organisations can take advantage of smart contracts, which are self-executing contracts with the terms of the agreement directly written into code. This software can allow the automation of various tasks such as policy issuance, claims processing, and payments. These contracts are executed automatically when predefined conditions are met, reducing administrative costs and streamlining operations.”
Reinventing transparency
Blockchain technology brings a new level of trust and transparency in digital transactions, according to Mustafa Melhem, business development manager for insurance at compliance firm Eastnets.
“Imagine blockchain as a digital ledger that’s shared among various parties. In insurance, this ledger securely records every transaction, such as the creation of new policies or the filing of claims. Each entry is verified and encrypted, making it nearly impossible to alter, which greatly reduces the chance of fraud.
“For instance, when an insurance company adds a new policy to the blockchain, this action is recorded across all copies of the ledger in the network. This ensures that every party has the same, up-to-date information, reducing disputes and simplifying claim processing.
“In addition, blockchain automates the verification process. Insurance companies can use it to instantly check customer information against sanction lists and other regulatory requirements. If a customer’s details change, the ledger is updated across the entire network, maintaining continuous compliance without manual checks.
“An example of blockchain’s impact could be in claim settlements. When a claim is submitted, blockchain can automatically verify the claim against the policy details stored in its ledger. If everything matches, the claim can be processed and paid out faster, with less human intervention.
“This not only speeds up transactions but also builds trust. Policyholders know that their claims will be handled swiftly and fairly, based on the immutable records of their policies and claims stored on the blockchain.”
Huge opportunity
Blockchain is emerging as a huge opportunity in the insurance market – yet banking is streets ahead in terms of creating use cases and experimenting with it as a new technology, says Leon Gauhman, co-founder and chief strategy officer at digital product consultancy Elsewhen.
“Working from a system of decentralised validation, blockchain enables policy data to be recorded in a distributed ledger. This creates a single ”source of truth’ that can be accessed by all relevant parties – from insurers and policyholders to regulators. Blockchain has also driven the rise of smart contracts: digital agreements that are stored on a blockchain and that can take certain actions in line with preset conditions.
“For example, the startup InsureETH used Ethereum blockchain to build a P2P flight insurance policy with smart contracts. These triggered payouts on cancelled or delayed flights using data from verified flight sources. Again, it’s the lack of central authority control that helps to build trust and transparency in this type of product.
“Looking ahead, combining smart contracts and AI would make it possible to redesign the entire insurance stack from underwriting to first notice of loss, so that it is driven by code and machines and overseen by humans. This would increase trust and transparency, reduce administrative and operational costs and allow new highly personalised insurance products and services to launch at scale.”
Blockchain could be important
Blockchain technology has the opportunity to make a tremendous impact in the insurance industry by cutting costs and overheads, suggests Drew Logue, digital assets practice lead and account executive lead at insurance services provider Alliant Financial Institutions.
However, he says the technology still has not been widely implemented across the commercial insurance industry.
“Frictional cost is likely the greatest area of opportunity for a permission blockchain to create efficiencies. The utilisation of smart contracts by insurance carriers, brokers, and clients to automate processes like tracking the status of claims and payments would drive significant value for all parties. By using blockchain technology, all parties with permission can see information added to the chain in real time.
“This would eliminate the need for brokers to spend considerable time checking and communicating the status of claims and payments to respective parties since this information would be available for everyone with permission to see on the ledger.
“Other industries are using blockchain technology to solve their supply chain and payment lags. In a few years, it could be a very important technology for insurance brokers and carriers, but we’re not seeing it widely adopted in commercial insurance…yet.”
Blockchain’s transformation
Blockchain revolutionises insurance by simplifying processes, ensuring transparency and reducing fraud risk, says Janthana Kaenprakhamroy, founder of insurtech Tapoly.
“One key impact is its capacity to simplify insurance operations, enhance anonymity, ensure immutability, and provide secure transparency. This technological advancement allows insurance companies to optimise their workflows, resulting in heightened efficiency and reduced expenses.
“Furthermore, the decentralised and distributed ledger system of blockchain guarantees that all stakeholders involved in insurance transactions can access identical information, fostering transparency and trust. Transactions recorded on the blockchain are resistant to tampering and are easily traceable, thereby diminishing the risk of fraudulent activities and bolstering security measures.
“Moreover, blockchain facilitates the implementation of smart contracts, which are self-executing contracts with predefined terms encoded into the blockchain. Smart contracts automate various insurance processes such as claims processing and payouts, further enhancing efficiency and accuracy in the industry.”
Blockchain challenges
Nick Reilly, head of business development, UK and North Europe at RNA Analytics, which provides software and consulting services to insurers, suggests that while blockchain technology holds potential for large transactions like property or certain insurance arrangements, challenges like scalability, regulatory risk, and lack of interoperability hinder its widespread adoption in the insurance industry.
“For many years, insurers have wanted to be seen to be innovative and open to using blockchain technology. The concept of a decentralised record of transactions that cannot be altered due to multiple independent, immutable records was one of real interest. It was not until the cost and climate impact were more widely understood that this caused companies to reconsider.
“Massive amounts of computing power, and the damage this causes to the planet from emissions, means that this is not morally, or economically, viable for small transactions. For large transactions, however, such as property or some insurance or reinsurance arrangements, the benefits could be substantial – and may include reduced transaction costs and improved efficiency.
“Insurers and the wider financial services industry will need to tackle several challenges that are currently hindering progress with blockchain, amongst them, scalability, regulatory risk and privacy/security. For the insurance industry in particular, interoperability presents a number of difficulties.
“A lack of standards and protocols (especially when you take existing infrastructure, legacy systems and third-party platforms into account) limits the potential benefits of blockchain technology as it currently stands. Until novel ideas for climate risk reduction can be identified – which may include reducing the number of independent records in the chain, or other energy efficiency methods – it will be difficult for the industry to progress with blockchain at scale.”
Blockchain scepticism
Risto Rossar, CEO and founder of Insly, which has provided full-cycle low/no-code insurance software for MGAs and insurance companies since 2013, challenges the notion of blockchain’s applicability in insurance.
Despite his belief in the transformative power of blockchain in various domains, Rossar argues that the centralised nature of the insurance industry presents a fundamental misalignment with the decentralised principles of blockchain.
“Despite being a big believer in Bitcoin and how blockchain can disrupt many areas of our lives, I actually don’t believe that blockchain has a big use case in the insurance world – at least how the sector is structured today.
“Insurance is a highly regulated and centralised industry, while blockchain is a decentralised system, so there is a fundamental misalignment in how they operate and what they stand for. It is like trying to implement libertarian economic principles in communist country; the roots of the system are so different that even if executed, the system will kill all the benefits of decentralisation and it will come out as an oxymoron: ‘centralised blockchain’.
“Nonetheless, blockchain technology could still offer benefits to the insurance sector, for example through Bitcoin or stablecoin payment systems to streamline transactions, fostering greater efficiency and trust in the process. However, leveraging these use cases depends on regulators adopting a more open-minded approach to the technology.”
