The Trust Link: Movement towards a More Connected and Efficient Insurance Market with Blockchain and Distributed Ledger Technology
Patrick Schmid, Vice President, RiskBlock Alliance, The Institutes
The blockchain, a distributed database and ledger that maintains a growing list of digital records, has potential to redefine insurance operations and help the insurance industry overcome many of its current challenges. The decentralized consensus process associated with blockchain technology, what some call the “Trust Machine”, removes the need for intermediary verification and could dramatically lower costs. Untrusting competitors within the industry can securely share data with one another on a permissioned blockchain, abating duplicative efforts, minimizing reconciliation issues and reducing costs. The ability to use smart contracts – programmable code that can be written into a blockchain and self-execute – extends potential applications and makes automating large chunks of insurance-related processes more practical. Recent research suggests blockchain implementation could lead to 5-13 percentage point reduction in combined operating ratios, creating a $200 billion opportunity. When productiongrade blockchain use cases proliferate across the industry, the first entrants will be best positioned to understand the associated efficiency gains and reap the competitive rewards. Therefore, industry participants are best served engaging early in blockchain efforts, including consortia, rather than waiting on the sidelines. The goal should be to determine use cases, prioritize them, engage in requirement setting, test the viability of blockchain applications and efficiently adopt use cases with a positive projected return on investment.