Blockchain could make insurers redundant

Insurance companies could in future become a redundant third-party. By using blockchain technology new players will be able to offer insurance solutions that bypass insurers altogether.

At its core, insurance companies collect premiums, pool the money and reassign the money to whoever has a valid claim. “Of course there are a lot of services around that, but the core service insurers provide is the payment or reallocation of pooled money. This can be automated through blockchain and is therefore a big threat for the insurance industry,” Laurent Benichou, director of innovation and foresight at AXA, says.

Blockchain is most famously known as the technology which underpins bitcoin, but its possibilities are much wider than digital currency alone.

As a technology which enables distributed ledgers, it has the capability to distribute data amongst multiple participants and allow those participants to update the data in a highly secure and tamper-proof environment.

“It’s got the power to be a very elegant solution to orchestrating the interaction between multiple parties in any kind of transaction, speeding up the flow of information from one party to another, reducing the duplication of data entry, having a much better record of information, reductions in dispute and just a whole sequence of things which present the opportunity to save costs and is ultimately more secure,” Steve Webb, UK lead for blockchain at PwC, says.

These characteristics make blockchain an extremely interesting technology for many different industries, including insurance.

There are several insurance processes that could benefit from blockchain, in particular those that are multi-party and are currently fairly highly manual processes, such as placement and claims management.

However, in order to reap these benefits all parties need to agree on using blockchain technology. Webb believes this is going to be a barrier to implementation for the more complex use cases. “One of the main benefits that you get from a blockchain-enabled environment is the ability to orchestrate the process of multiple parties interacting, but before I can orchestrate that process, all the parties have to agree that that’s going to work for them and that’s the way they want to operate.”

Getting regulatory approval could also take time. “This isn’t insurmountable by any means, but the technology is relatively new and therefore people need to go through a structured and rigorous process to convince both their own internal risk functions and auditors and regulators that what they are launching in a new world is resilient,” Webb explains.

But like with any other technology, blockchain is secure as long as its users know how to handle it. Blockchain is based on public and private keys, so if a user provides their private key to someone else, then it’s no longer secure.

Benichou therefore says the highest risk of blockchain might be a social one. “For example, you know you shouldn’t give the login details for internet banking to anyone, but you give your IBAN to receive a payment. In the blockchain world, IBAN would be your public key and your bank account login details would be your private key. But some people don’t really understand that and they might accept to share their private keys or leave them in places where they are not safe (typically bitcoin exchanges).”

In the insurance sector, AXA is one of the companies leading the way when it comes to blockchain. Its venture capital arm, AXA Strategic Ventures, is part of an investment group that has invested $55m in BlockStream, a leading name in blockchain technology.

AXA decided to invest in blockchain because of its ability to disrupt the insurance industry, but it also saw a lot of new opportunities.

“We see blockchain as a disruptive technology that makes it possible to bypass third parties, redefining the insurance companies themselves. By using this technology you can avoid a lot of processes, not only at the point of sale but also at the claims stage,” Florian Graillot, associate at AXA Strategic Ventures, says.

Delayed flight insurance is a good example of a claims process that could be simplified by blockchain. Instead of providing a paper proof of the claim, the insured can subscribe to the service ahead of their flight, and in case of a delay, automatically receive instant payment once the plane has landed.

“Blockchain can have a huge impact on the life insurance industry as well, by lowering fees and lowering the time of transaction. This could definitely reshape the insurance space,” Graillot says.

For the time being, many players may be focused on blockchain’s ability to reduce costs, but it is clear that in the long term it offers the opportunity to totally rethink what insurance is and how it is carried out.