What is Blockchain?
Blockchain is a data structure that allows for a secure digital ledger to be produced and shared among a network of various computers/devices. The ledger can be accessed securely across the network, without the need for one central authority. Once data has been added to the ledger, it is intended to remain there. As such, all users of the network must approve transactions before they are recorded and verified. Blockchain offers transparency, as all users of the network may access the most up-to-date version of the ledger. In Mckinsey & Company’s “Blockchain in Insurance – opportunity or threat” white paper they note that whilst insurance generally lags behind the banking sector technologically, it is uniquely positioned to benefit from the use of Blockchain.
How will Blockchain help the insurance industry in the future?
Insurers manage many large and complex transactions on a daily basis and Blockchain could provide a solution for assisting with such processes in the future. There are three key areas where Blockchain will be able to help; the claims process, documentation production, and Anti Money Laundering (AML)/ Know Your Customer (KYC).
Blockchain could provide a more efficient way of achieving claims cooperation among complex layers of insurance and expedite claims settlements.
Reducing the need for repetitive document production across different insurers, by creating one digital ledger for all the documents will increase efficiency and reduce the potential for mistakes to be made. Through the use of digital fingerprints (hash functions, date and time stamps) the ledger will be secure.
Anti-Money Laundering (AML) and Know Your Customer (KYC):
AML and KYC requirements must be met by all parties involved. PWC and Z/Yen (a London based commercial “think tank”) has created a Blockchain prototype that would make the current manual insurance documentation process quicker and more effective. The idea is that customer documents will be stored whilst allowing the clients to view and control their records. The insurance companies involved will be entitled to access the files for a set period of time only.
By comparing the process of record keeping, Blockchain has the potential to vastly reduce costs in the insurance market. Santander has suggested that Blockchain could reduce annual costs by up to $20bn for finance firms by 2022. It is likely that Santander based this prediction on the challenges posed by complex systems and paper-heavy processes within the insurance sector. Having a digital ledger would provide a single secure system accessible to multiple parties, such a system would be simpler and cheaper to operate in the long-run.
The substantial investments into the development of Blockchain supports the benefits it could bring in terms of cost, security, and simplicity. However, the challenge will be when it comes to implementing the process on a complete industry scale, there will need to be continued wide scale testing before insurance firms officially put into practice Blockchain technology.