By now, you’ve probably heard the term blockchain thrown around, possibly alongside other buzzwords such as artificial intelligence and machine learning.
Initially associated with Bitcoin and cryptocurrencies, the technology is widely considered to have the potential to revolutionise entire industries – including insurance.
But what does blockchain actually mean, and what practical application does it have to the insurance world?
“Blockchain is a distributed ledger, where the records that exist between counterparties don’t have to reside with a single entity,” Michael Ting, SVP of digital markets at Hyperwallet, told Insurance Business.
Information stored on blockchain, a digital set of records, is decentralised, rather than being held by one person or entity – which has significant benefits.
“We’ve all seen the risk of something sitting with a single entity – it can get hacked, or manipulated,” Ting explained.
“Blockchain creates a single record that everyone agrees represents the truth… It’s indisputable and it can’t be tampered with – that’s something that doesn’t exist if it’s just sitting in someone’s database.”
For insurance, having an indisputable record that guarantees authenticity can address some major problems – not least fraud.
“Everyone has a consensus that this is the truth – these are the parties involved, this is how much the claim is – that solves a lot of the issues around having to rely on one single entity to be the record that everyone has to agree with,” Ting said.
A 2017 IBM report claimed that blockchain-based systems could help “radically improve the insurance industry,” pointing specifically to fraud detection and prevention.
“By maintaining the integrity of the asset through various owners, blockchain technology can minimise counterfeiting, double booking, document or contract alterations,” the report said, adding that the technology also has the potential to be used for identity management.
Insurance giant Zurich agrees that blockchain could assist in tackling fraud, namely by creating an “incorruptible, international and cross-industry database that can be used to flag possible signs of insurance fraud.”
Blockchain could be used to detect identity fraud, and to check claims history and police reports, the insurer said in a blog post.
“In this manner, contracts and claims could be recorded on to the blockchain, ensuring that only valid claims are made and multiple claims for one accident are rejected,” it said. “The addition of smart contracts can also ensure that payments are triggered when certain conditions are met and validated.”