Why blockchain transcends insurtech and can drive growth for insurers – as well as cut costs
With the potential to open up new markets and customer bases, blockchain can drive growth for insurers and reinsurers – as well as create efficiencies and cut costs – and it will be the companies that understand this and leverage its potential that will gain a strategic advantage in an increasingly digitally-led market.
That is according to Victor Boardman, head of insurance at R3, a technology company that specialises in rolling out blockchain or distributed ledger solutions for businesses, which is producing a webinar with Intelligent Insurer on June 16 focused on this topic.
That event, called ‘Keep Up With The New Kids On The Re/insurance Blockchain’, will also feature several experts on the subject including Bob Crozier, head of Global Blockchain Centre of Competence & chief architect Customer Platforms, Allianz Technology; and Richard Phipps, director, Distributed Ledger Technology, Swiss Re.
Re/insurers are widely tipped to build some of the biggest blockchain applications outside of the banking and trade sector. The potential wins include the removal of costly and error-prone rekeying and duplication, reduced processing times and costs for placement, compliance and claims settlement, plus better access to new risk pools or products.
But Boardman stresses that it is the last of these points that has the potential to transform the business models of many insurers and reinsurers. He notes that it has the potential to open up new markets, offer coverage to whole sections of the population - where this was not possible before because of the cost - and cover new types of risks in very efficient ways.
"Blockchain has the potential to transform many areas of insurance. There is significant potential to drive efficiencies; allowing people to be redeployed to work on more value-added tasks, while at the same time driving better customer outcomes. The technology provides efficiencies that in turn enable new products to come to market, especially for those who could previously not access insurance."
He says microinsurance could be one example of this. Because of the efficiency of blockchain and the fact it holds all information in one immutable version of the truth, it is possible to target customers with little or no financial history or stability easily and with very low barriers. Customer interactions can be speeded up and the customer experience improved, while reducing the prevalence of fraud.
"For retail, insurance blockchain can allow you to create and price products much more efficiently," Boardman said. "We have seen very small life insurance products developed and sold very cheaply and that is possible because the admin process using blockchain may only have cost 50 cents per policy. It opens up a whole new world."
He says another application with the potential to generate growth is through the use of parametric insurance – where a policy is automatically triggered based on an external, neutral measurement such as an index or meteorological observation e.g. the rainfall in a certain period was above X therefore the policy pays out. Supported by the internet of things, the potential here is enormous.
"Interestingly, one of the potential scenarios in which that could be used is also a pandemic," Boardman said. "What is more, using blockchain, contracts can be set to pay instantaneously once the pre-agreed trigger point is reached."
He says that despite the many potential uses of blockchain, one of the big challenges R3 faces is around educating people about the true nature of blockchain and the fact that it complements rather than competes with other forms of technology.
He notes that it remains a common misconception that blockchain is intrinsically linked to cryptocurrencies. In fact, the opposite is true. Cryptocurrencies are just one of many things that operate from a blockchain or distributed ledger platform.
"Insurers do not always understand blockchain or its true potential," he said. "There are many uses of blockchain in all industries. It is important people first grasp the concept and then start to consider what it is capable of.
"It has a big role to play in distribution and processing because it provides a layer of trust across all parties and all elements of the contract from the front end to the claims. Blockchain acts as a trusted single source of the truth for all parties involved in the end-to-end insurance process, with additional technologies complementing at certain steps e.g. AI to triage business at the quote stage or use of remote video calling to assess a claims."
Within the risk-transfer universe, he says that reinsurers and large insurers are towards the front edge of the curve in terms of their understanding of blockchain and willingness to embrace it. Life and health companies are towards the back at present, despite the many ways in which it could enhance their businesses.
He says one of the key ways in which bigger players are starting to use blockchain is as a complement to other technologies they may have invested in in recent years. "They are starting to understand how blockchain can be leveraged throughout the value chain and other insurtechs can be bolted on very easily," he said. "The more forward-thinking companies are starting to understand this and those that do not will get left behind."
Boardman will be discussing all of these points in more detail as well as guiding listeners through use-cases and R&D opportunities for blockchain while also exploring the most promising platform models and ecosystem partnerships to get blockchain initiatives off the ground in the June 16 webinar.
Join the 300 re/insurance professionals already signed up for the webinar 'Keep Up With The New Kids On The Re/insurance Blockchain', taking place Tuesday June 16 at 3pm BST/10am ET.
Victor will be joined by Bob Crozier, head of Global Blockchain Centre of Competence & chief architect Customer Platforms, Allianz Technology; and Richard Phipps, director, Distributed Ledger Technology, Swiss Re.
To register click here.
