In general we see in technology that whatever happens in banking emerges in insurance a few years later. This is by no means a ‘lashing out’ at insurers, it is almost engrained in the business: even less customer contact than banks, long(er) term contracts and intrinsically connected with risk & fraud management, strict compliance: a tough place to change fast. One of the reasons why Roger Peverelli, Reggy de Feniks and myself kicked off the Digital Insurance Agenda was putting this right. We want to make sure that there is as open and vivid a dialogue on technology and innovation in the insurance industry as there is in banks. Much more money is being poured into bank related fintech than in insurtech to date, more events, more platforms, more everything. And much more is written about Blockchain and banking than Blockchain and insurers. Obviously the Bitcoin currency initially pulled all attention towards the payments angle, how Bitcoin would disrupt that space and enable a clearing house free international exchange of funds. Recently sharp minds like Dave Birch pointed out that Blockchain could have a huge impact on the entire identity discussion. Chris Skinner eggs us on in his new book The Valueweb to look at the value exchange element of the Blockchain and at DIA Barcelona in April Everledger presented a brilliant yet simple solution for the irrefutable proof of asset around diamonds. This example alone fits perfectly in the current timeframe: it is open and transparent, it saves insurance companies a lot of time and money in preventing and detecting fraud in claims and it serves society well: blood diamonds are earmarked and can simply no longer ‘find’ their way into the legal system.
So here we go, what is Blockchain and what can it be for insurers. Blockchain is a public general ledger that records assets and every exchange by everyone. The asset can be a currency like Bitcoin but also a set of (complex) data like a contract. It is secure and irrefutable. Why? The same transaction can never be done twice without the permission of the two parties (receiver and sender) for each contract party has a private key that they only pass on when all obligations are met to the next contracting party. So in laymen’s terms, no two people can own the same diamonds, no four people can live at the same address and claim benefit, no two parties can claim the same deeds of one property, no party can pretend to be you in a contract for they do not have the private key. Therefore Bitcoin is not the most important talking point of Blockchain, it is the technology – the crypto secure Blockchain protocol – that enables industry innovation. Without a trusted third party like a clearing house or industry body or bank – people can record and transfer value.
Two core areas
I think that insurers should at this moment in time explore two core areas around Blockchain: Identity (proof of) and Fraud prevention. This is not exhaustive by any means, but I think these two can bring true transformation ranging from collaborative to disruptive.
Whenever insurance companies talk digital identity – and a very relevant KYC topic it is – it is purely optimisation based. Where we used to store our insurance policies in physical vaults the new projects are easily called Digital Vault etc. So rather than accepting that people have digital identities that are theirs as much as the paper based one, the industry encouragespeople to lock up their digital identity in a vault and trust the key to the party they trust most: the government, a bank or an insurer. For they will keep them safe – well intended illusion at best. These projects are 20th century solutions to a 21stcentury society. The most likely scenario though is that in not so many years from now people will empower their digital identity on line as a node in the network and share their identities on Blockchain based ledgers where they and they alone hold the private key. This is protection and empowerment (digital self-determination) all in one. This is one aspect that the industry should look at in a coordinated international context, rather than spend zillions on separate solutions solving one element of the puzzle: create, record, protect, give access and share a new digital identity.
Secondly, most countries have shared private ledgers or better said fraud databases that record caught criminals when it comes to insurance, credit or benefit fraud. With a Blockchain style ledger the industry can not only prevent crimes from proven criminals but also prevent those acts. To illustrate this, the UK general insurance industry is annually subject to around 400 million in so-called ‘crash for cash’ scams whereby in an orchestrated manner criminals crash cars and claim refunds. Smart contracts with insight in single ownership of cars – not backdated but live – can go a long way to prevent fraud, coupled with the inability to obscure real IDs in long paper or email trails throughout a single case file. Time saved, monies not paid out and thumbs up for the industry and its professionals. Cross industry initiatives around fraud prevention should build their own Blockchain ‘R3’ exploring solutions to combat these never ending industry risks. Identity, proof of asset and a record of transactions are all key to a safe, digital and cost effective insurance industry. I say insurers should get into gear and for once overtake their bank peers in terms of speed and innovation. They might have even more to gain in a shorter time scale.
This vision article is authored by Conny Dorrestijn, founder of Shiraz Partners, co-founder of DIA Barcelona and listed in the top 50 Fintech Women.