While parts of the insurance industry are experimenting with the technology, the hype around blockchain and the necessity of collaboration has slowed widespread adoption
Of all the technologies that have the potential to transform the insurance industry, blockchain might be one of the most hyped – but that hasn’t necessarily translated into widespread adoption by insurance companies.
“The hype around blockchain is that it will solve everything under the sun … and I think that impedes some adoption because people are going into blockchain with high expectations,” says Bijesh Jacob, senior vice president of technology and standards for ACORD Solutions Group.
“I think people are watching some of the more public [use cases] that are out there … to see how [they] take off” David Bassi, EY
Compared to a technology like artificial intelligence, which has already had a noticeable impact on the insurance industry (Accenture reported in 2018 that 80% of insurance leaders believe they’ll have AI integrated into their operations in the next two years), the implementation of blockchain has not happened as smoothly or swiftly.
Part of the problem is the fact that, as a technology that allows data to be stored in a distributed ledger to which several stakeholders have secure access, blockchain is underpinned by a reliance on other organisations. It’s a tool that enables collaboration between parties and will play a crucial part in managing business relationships – but its very nature means a single company can’t be the first and only mover on this technology.
Contrast that with AI, where “you don’t really need any other market participants to be part of your investment in that space – you get benefit just by investing yourself and doing things within your four walls,” says David Bassi, executive director at EY.
“Blockchain does require those connection points between multiple players.”
He highlights its use in the shipping industry to track the locations and routes of ships for multiple parties, including shippers and insurers. However, that lengthens the adoption curve because other players have to connect in order to make blockchain valuable.
Insurance organisations are making progress in blockchain adoption by exploring use cases for the technology. ACORD, for instance, has been involved in multiple blockchain initiatives over the past few years and recently formed a group to review and propose common standards for the adoption of blockchain capabilities within the insurance industry.
EY is also walking the walk, recently announcing that it will be the primary service provider in blockchain-related cybersecurity and risk management guidance for The Institutes’ RiskBlock Alliance, the first blockchain consortium for the risk management and insurance industry.
This collaboration will help RiskBlock Alliance identify the risks unique to its blockchain and practice controls, as well as provide blockchain-specific cybersecurity assessments and testing.
Successful use cases are starting to pile up. In addition to the shipping industry, Bassi has noticed that blockchain is particular useful in the proof-of-insurance concept, such as when a contractor is hired for a project and needs to be able to prove quickly and easily that they have workers’ compensation coverage in place.
“The other place we’re seeing a lot of interest is around subrogation – so instances where one insurer is paying and then they have to collect from another insurer who’s ultimately responsible when liability is settled,” Bassi says.
“You’ll have lessons learned, which will then help drive a change in direction and an uptick in adoption” Bijesh Jacob, ACORD Solutions Group
“The ability to share information between those parties at the time it’s gathered [and] as settlements are being made takes a lot of the time and effort and paper flow out of the system.”
As use cases continue to show off blockchain’s benefits, Bassi predicts that the technology will become much more popular in the insurance industry in the next five years.
“I think people are watching some of the more public [use cases] that are out there, particularly the Insurwave piece, to see how that takes off,” Bassi says, referring to a blockchain platform that supports marine hull insurance.
“As people see that, you end up in situations where other big participants in the insurance value chain could push adoption, and I think that’ll happen.”
The fact that companies are ramping up their experiments in this space and are learning how to apply the technology is a good sign. Even if some use cases are only internal exercises, they give companies a blockchain foundation to build from in the future.
“What’s going to happen is that you’ll have lessons learned,” Jacob says, “which will then help drive a change in direction and an uptick in adoption.”