Blockchain for insurance: A realistic picture

This is a contributed piece by Pratap Tambe, business development manager of Insurance, UK at Tata Consulting Services


Blockchain is fast becoming the buzzword for 2017. Since its entry into industry vocabulary as the underlying technology that operates Bitcoin, industries across the world have been exploring ways to implement this technology and develop new ways of delivering their services to their clients, including streamlining their operations. Not since the introduction of cloud computing has a piece of technology made such an impact on the ways in which businesses can operate and think about how they communicate with their customers and partners.    

Many of us know that blockchain is a topic that is hot at the moment. It's a topic that is disruptive. It's a topic that is accelerating. And that may be your elevator pitch... but now imagine your elevator stops between floors and you are asked “Great overview - but can you explain to me how it really works?”

Read an interview with the author of ‘Blockchain For Dummies’ and download the first chapter as a PDF. Check out: Blockchain For Dummies: What you really need to know

Best known as the technology which underpins Bitcoin, the blockchain is a platform which records all Bitcoin transactions. To ensure they are binding and irrevocable, the blockchain requires all bitcoin peers to approve every transaction using personalised digital signatures, commonly known as hashes. Once a transaction has been approved it is forever placed into a block. Once that block is full of transactions it is placed onto the blockchain through a consensus process.

Since its successful introduction, aspects of Bitcoin have been attacked and fallen victim to hackers, for instance specific bitcoin wallets have had their savings emptied following the host platform being corrupted. However, the fundamental Bitcoin technology has never been fully compromised. These incidents have occurred in specific, non-fundamental aspects of the network and are isolated cases of hacking and theft. This overall security has made blockchain technology extremely attractive to other industries.

For instance, the diamond industry, so often known for the forgery which takes place during trading, has started to be cleaned up by a blockchain. By assigning every diamond a digital signature, peers on the private blockchain are able to register, track and purchase legitimate diamonds with the knowledge that what they are buying is genuine.

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Blockchain in the insurance industry

Blockchain is a technology not only able to be utilised by financial or retail industries. It is a technology which allows secure value transfer, regardless of the value of the unit being transferred. Subsequently, it is a technology which has the potential to revolutionise industries which are primarily run on written contracts, such as the insurance industry.

The Blockchain used by Bitcoin is an example of a public blockchain. Anyone with the necessary funds is able to buy into the Blockchain and receive the historical data which goes with the purchase of a Bitcoin. However, not every blockchain is open. The beauty of a blockchain is its privacy. The Blockchain does not comply with Know Your Customer regulations and therefore does not identify owners of specific bitcoins, hence it ensures privacy of transactions. However private Blockchains (Distributed Ledgers) can be made compliant with Know Your Customer regulations alongside supporting the privacy of transactions. The complexity which is needed to validate a transaction increases with every block that is introduced and therefore with enough stakeholders a public blockchain becomes virtually impenetrable, this ever-increasing complexity is also the reason why Bitcoin has retained a steady growth rate.

However, private blockchains can be as secure. These distributed ledgers are stored in multiple locations under the control of stakeholders within the said blockchain. These stakeholders are then able to control which companies and individuals have access to this shared ledger. To join a private blockchain you need to be invited, it is not possible to ‘buy’ your way in. For industries which require collaboration between stakeholders a private blockchain can remove the inevitable manual admin that underpins any major contract between multiple stakeholders.

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However, the insurance industry is suffering from a wait and see mentality. Currently insurers do not believe they need a blockchain to remain competitive. Customers appear to be content, or perhaps used to, the slow and drawn out process of brokers negotiating their policy with various insurers and constantly amending a single master contract. However I’m seeing more and more industries starting to implement working blockchains and even discussions of entire companies being created and run on a blockchain. I believe in the not too distant future, insurers, brokers and customers will soon understand the benefits of a blockchain, primarily its efficiency and security.


The future implementation of a blockchain

The introduction of a mainstream blockchain system in the insurance industry is drawing closer. Individual insurers across the industry have allocated significant resources to researching and implementing working private blockchain systems. For instance Swiss RE, a leading global insurer, has teamed up with the likes of Allianz, Zurich and Aegon to create a ‘Blockchain Insurance Industry Initiative B3i’ aiming to explore the potential of distributed ledger technologies to better service clients through faster, more convenient and secure services.

Tata Consultancy Services’ (TCS) Technology Unit has gone one step further and created the TCS Integrated Blockchain system which it initially introduced into the financial industry. This Proof of Concept, although not yet present within the insurance industry, allows a number of financial services companies to exploit the potential of blockchain. Utilising this tech, companies have been able to transfer secure information such as contracts to their partners and work simultaneously on the document. I see no reason why this ability is not transferable and cannot be used by global insurers and brokers in the near future.

For instance, let’s imagine a large manufacturer that needs to hire the services of an insurance broker to manage its large commercial risks. Once the insurance broker understands the risks involved it will typically start allocating percentages of the insurance contract to individual insurers. However, this process takes a significant amount of time to complete. The broker has to rewrite the entire contract every time a small addition is made by either the customer or the individual’s insurance company. Following this amendment the contract has to be redistributed and assessed. However, if insurance brokers utilise the potential of a blockchain and its secure network, they will be able to instantaneously update an e-contract in full view of all the stakeholders. These changes will then need to be approved by all parties involved in the blockchain, as the technology dictates, before anything can be added into the master contract. This will inevitably lead to a contract which has been reviewed numerous times and all aspects agreed to at a significantly faster rate than ever before.

Although we are still a few years off seeing a blockchain being used in the mainstream insurance industry I believe the significant research being carried out and the working PoCs that are currently on the market is exponentially speeding up the process. Once insurers trust a blockchain to securely transfer information, its implementation into the industry will only be a matter of time.


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