Blockchain and smart contracts have enabled the development of new approaches in the insurance industry, as they begin to replace outdated business models (with excessive paperwork, communication problems, multiple data operating systems and duplication of processes and the inability of syndicates to mine their data). By digitizing payments and assets—thus eliminating tedious paperwork—and facilitating the management of contracts, blockchain and smart contracts can help cut operational costs and improve efficiency. Smart contracts also allow for automation of insurance claims and other processes as well as privacy, security and transparency. It is estimated that roughly one-third of blockchain use cases are in the insurance industry.
How Blockchain Is Used in Insurance
How will blockchain and smart contracts transform the insurance industry?
- Quick and efficient processing and verification of claims, automatic payments—all in a modular fashion, thus minimizing paperwork.
- Transparency, minimizing fraud, secure and decentralized transactions, reliable tracking of asset provenance and improving the quality of data used in underwriting. Besides improving efficiency, this also reduces counterparty risks, ensuring trust and safety both from the insurer's and customer’s perspective. By computing at a network, rather than individual, company level, the consumer is reassured that the process was completed appropriately and as agreed upon. From the perspective of the insurance company, this fosters trust, as well, and encourages consistency, as the blockchain provides transparent and permanent information about the transactions.
The insurance industry has traditionally been associated with tedious administration, paperwork and mistrust; the incorporation of blockchain, however, has the ability to transform this image by bringing operational efficiency, security, and transparency. The long-term strategic benefits of blockchain are thus clear.
Top insurance blockchain projects:
AIG (American International Group) – Smart contract insurance policies HQ: New York Description: AIG, in conjunction with IBM, has developed a “smart” insurance policy utilizing blockchain to manage complex international coverage. Blockchain network: Bitcoin Deployment: In June 2017, AIG and IBM announced the successful completion of their “smart contract” multinational policy pilot for Standard Chartered Bank. It is said to be the first such policy to employ the blockchain digital ledger technology.
Fidentiax - Marketplace for tradable insurance policies HQ: Singapore Description: As “the world’s first marketplace for tradable insurance policies,” Fidentiax hopes to establish a trading marketplace and repository of insurance policies for the masses through the use of blockchain technology. Blockchain network: Ethereum Deployment: Fidentiax succeeded in raising funds for the project through its Crowd Token Contribution (CTC, aka ICO) in December 2017.
See also: How Insurance and Blockchain Fit
Swiss Re – Smart contract management system HQ: Zurich, Switzerland Description: Swiss Re, a leading wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer, has partnered with 15 of Europe’s largest insurers and reinsurers (Achmea, Aegon, Ageas, Allianz, Generali, Hannover Re, Liberty Mutual, Munich Re, RGA, SCOR, Sompo Japan Nipponkoa Insurance, Tokio Marine Holdings, XL Catlin and the Zurich Insurance Group) to incorporate and evaluate the use of blockchain technology in the insurance industry. The Blockchain Insurance Industry Initiative (B3i) hopes to educate insurers and reinsurers on the employment of the blockchain technology in the insurance market. It serves as a platform for blockchain knowledge exchange and offers access to research and information on use case experiments.
As of yet, there have only been individual company use cases in the industry. B3i is working to facilitate the widespread adoption of blockchain across the entire insurance value chain by evaluating its implementation as a viable tool for the industry in general and customers in particular. The initiative envisions efficient and modern management of insurance transactions with common standards and practices. To this end, it has developed a smart contract management system to explore the potential of distributed ledger technologies as a way to improve services to clients by making them faster, more convenient and secure.
B3i was launched in in October 2016. On Sept. 7, 2017, B3i presented a fully functional beta version of its blockchain-run joint distributed ledger for reinsurance transactions. On March 23, 2018, the B3i Initiative incorporated B3i Services company to continue to promote the B3i Initiative’s goal of transforming the insurance industry through blockchain technology.
Sofocle – Automating claim settlement HQ: Northern Ireland, U.K. Description: Through smart contracts, AI and mobile apps, Sofocle employs blockchain technology to automate insurance processes. All relevant documents can be uploaded by customers via mobile app, thus minimizing paperwork. Use of smart contracts allows for a far more efficient and faster settlement process. Claims agents can verify insurance claims, which are recorded on the blockchain in real time. The smart contracts allow for verification of a predetermined condition by an external data source (trigger), following which the customer automatically receives the claims payment. Blockchain network: Bitcoin
Dynamis – P2P Insurance HQ: U.K. Description: Dynamis’ Ethereum-based platform provides peer-to-peer (P2P) supplementary unemployment insurance, using the LinkedIn social network as a reputation system. When applying for a policy, the applicant’s identity and employment status is verified through LinkedIn. Claimants are also able to validate that they are seeking employment through their LinkedIn connections. Participants can acquire new policies or open new claims by exercising their social capital within their social network. Blockchain Network: Ethereum and Bitcoin Deployment: The goal of Dynamis is the creation of a decentralized autonomous organization (DAO) to restore trust and transparency in the insurance industry. Its community-based unemployment insurance employs smart contracts and runs on the Ethereum blockchain platform. Using social networking data and validation points, Dynamis verifies a claimant’s employment status among peers and colleagues. It also depends on Bitcoin-powered smart contracts to automate claims.
Conclusion
Recognizing the benefits of blockchain and smart contracts, the insurance industry has begun to explore their potential. With the traditional insurance model, validating an insurer’s claim is a lengthy, complicated process. Blockchain has the ability to combine various resources into smart contract validation. It also offers transparency, allowing the customer to play an active role in the process and to see what is being validated. This fosters trust between the insurer and the customer.
Despite the obvious benefits of blockchain for insurers, reinsurers and customers, the industry has yet to adopt blockchain on a large scale. The primary reason for this is that blockchain adoption has until now required in-depth knowledge and skills in blockchain-specific programming languages. The limited number and high cost of hiring blockchain experts have rendered the technology out of reach for many businesses in the industry. Without access to the technology, exposure to blockchain and the ability to reap its benefits will remain limited for insurance companies.
How can these obstacles be overcome? The key is accessibility to enable all parties within the insurance ecosystem to reap the benefits of blockchain and smart contracts. There is a dire need for a bridge between the blockchain technology and these industry players. This is the role that the iOlite platform fulfills. iOlite provides mainstream businesses with easy access to blockchain technology. iOlite is integrated via an IDE (integrated development environment) plugin, maintaining a familiar environment for programmers and providing untrained users simple tools to work with. The iOlite platform thus enables any business to integrate blockchain into its workflow to write smart contracts and design blockchain applications using natural language.
How it works? iOlite’s open-source platform translates any natural language into smart contract code available for execution on any blockchain. The solution uses CI (collective intelligence), in essence a crowdsourcing of coder expertise, which is aggregated into a knowledge database, i.e. iOlite Blockchain. This knowledge is then used by the iOlite NLP grammar engine (based on Stanford UC research), the Fast Adaptation Engine (FAE), to migrate input text into the target blockchain executable code.
See also: Blockchain – What Is It Good for?
The future of blockchain in insurance With a clear direction of blockchain adoption for the future, insurance companies will be forced to adapt or be left behind. The adoption of blockchain by the insurance industry is no longer a question of if but how.
