10 minutos de lectura 25 mar 2019
adjusts rooftop weather station storm

Four ways blockchain can benefit insurers

Por

Shaun Crawford

EY Global Vice Chair – Industry

Impulsar soluciones diseñadas para reformar los mercados globales y la industria a través de la convergencia y la disrupción.

10 minutos de lectura 25 mar 2019

Insurers who have trust at the heart of their propositions have begun to innovate with blockchain.

As the digital trend continues, we are witnessing a gradual convergence of technologies, processes, data, assets and people across an integrated ecosystem. Insurance is experiencing an evolution in products, services and infrastructure in response to this connected world.  Progress in the insurance digital space will be driven by successful innovation, including the adoption of fast-emerging disruptive technologies such as blockchain.

Welcome to the blockchain

Blockchain is a distributed ledger of transactions, a multi-tiered technology that potentially orchestrates the behavior of consumers and their assets based on a series of transaction ledgers.

Like a traditional ledger, individual transactions (unique blocks) are added to the ledger (the chain) and never removed. A complete audit trail is maintained and anyone with the appropriate encryption rights (consumer, insurer, auditor or regulator) can access a copy of that ledger and verify past transactions without having to trust the participants in the original transaction. Therefore, ledgers can virtually exist on a private and public basis depending on the needs of the providers.

What blockchain technology means for insurers

Insurers who have trust at the heart of their propositions have begun to innovate with blockchain because they believe it may provide genuine long-term strategic benefits:

  • Access to secure, decentralized transactions (with common access to a ledger that has a secure audit trail) provides an improved basis for non-repudiation, governance, fraud prevention, financial data and reporting.
  • Accurate and timely notification of changes drives improvements in aggregated risk and capital opportunities, as well as big data strategies, which are founded on more available and secure information about customer assets, priorities, preferences and third-party information services.
  • An opportunity to integrate an ecosystem of trusted third parties to reduce the costs of their global platforms, improve customer and market reach and develop new propositions.
  • Opportunities in enterprise governance through improved data access, third-party controls and more sophisticated management of the risks associated with their products and services, including resilience services and cyber insurance.

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Opportunity for insurers

For the insurance market there are four cornerstones of opportunity:

  • 1. Fraud detection and risk prevention

    • Blockchain has the potential to eliminate error, negligence and detect fraud by providing a decentralized digital repository to independently verify the veracity of customers, policies and claims (with a complete underlying transaction history).
    • Many insurers are exploring blockchain to reduce fraud and liability associated with immediate payments across borders and multiple currencies.
    • An independent record of all transactions can potentially stop US Medicare fraudulent activity.
    • In specialty insurance and reinsurance markets, there are equally high degrees of inefficiencies, gaps and errors caused by poor data quality in the front and back offices.
  • 2. Digital claims management

    Mobile and digital technology will become the primary solution for improved and effective claims management and customer service if also coupled with these improved compliance controls:

    • Using mobile phone cameras as evidence to make data flows more timely, reduce loss adjuster costs and increase customer satisfaction
    • Employing mobile technologies in conjunction with satellite images to facilitate claims payments in the event of a natural disaster in a remote area, ensuring disaster recovery services for everyone
    • Collecting big data from weather stations to pay claims based on the actual weather readings, eliminating the need for post loss adjusting services to agriculture or commercial businesses who pay based on the accuracy of data
    • Providing historical and accurate third-party transaction data for predictive analytics trending
  • 3. New distribution and disruption

    • Leading global insurers are developing alliances with payment business models to achieve capital efficiencies with single global ledgers and to expand their networks.
    • Leveraging blockchain assures veracity so decisions can be made faster and in full confidence.
    • Motor insurance generates large quantities of innovation data and cross-selling opportunities. Invasive black box and mobile devices communicate with GPS devices to calculate premiums through usage-based insurance (UBI).
    • Blockchain will likely power innovations in micro-insurance and microfinance.
    • With blockchain, insurers are developing the concept of mobile wallets that are restrictive to their offering and can achieve customer engagement over a wide space and time so that products can be tailored with functionalities and reduce the importance of location.
    • Big data resources are providing insurers with greater opportunities to zone-in on specific and accurate consumer behavior and to commit research and development resources to the right opportunities.
  • 4. Cyber liability — new products

    The blockchain adds a new real-time capability for security professionals by focusing on the integrity of the digital assets that comprise a network and the configuration of data points, switches, routers, event logs and binaries so the state of the network can be verified independently and in real time.

    This means policy wordings on cyber solutions will address the blockchain standard as a warranty in a manner similar to what has been used in nonlife insurance policies for physical security.

Examining other issues

With any new technology or innovation, there are also ongoing concerns over scalability, implementation skills, practical integrations with established businesses and governance.

Known areas of concern among regulators are:
  • Critical infrastructure systems have not reached a point of maturity, with significant legacy technologies still intact after years of M&As.
  • The maturity of expertise, systems and shared services to protect corporations and their clients from data theft and compromise to networks or systems (including planting Trojans, is a high-risk.
  • Standardized processes, methods, techniques supporting pre- and post-loss control mechanisms are gradually being implemented.
Key considerations for insurers:
  • Scalability of the technology and operational integration to existing businesses
  • Understanding the disruptive benefits or effects of blockchain or other technologies
  • Timing, planning and risk management
Key considerations for the market:
  • Reduction in centralized infrastructure will make monitoring more costly and complex in the short term for insurers and financial markets.
  • Mandatory, prescriptive regulation is unlikely to be effective because the evolving threat means that it quickly will become obsolete, diverting resources from prescriptive risk management practices.
  • Flexibility in the form of prudential regulation is needed to provide a sustainable platform for the future.
  • The European Commission plans to overhaul the regulation of data protection and privacy across all member states by creating a single standard for all organizations processing personal data in the EU.
  • Changes in how customers control their data, for example, new rules on consent or withdrawal of consent, will completely change the cost and ability of (re)insurers to share and update records and reuse information.

Analyzing data in real time, protected by the blockchain and as part of a strategic, holistic risk management strategy, is now a mandatory requirement for the insurance industry.

We have seen how data that affects the lives of customers and the solvency and reputation of corporations can be made immutable and independently auditable by leveraging the blockchain standard.

Tying big data repositories to the blockchain can enable those repositories to be used for long-term regulatory compliant archiving. This will make them available to customers, while still providing proof of segregation and PII handling for regulators and auditors.

The vision promised by big data and cloud computing is expected to dramatically transform the insurance industry. Analyzing this data in real time, protected by the blockchain and as part of a strategic, holistic risk management strategy, is now a mandatory requirement for the industry. It is a positive competitive differentiator and will enable insurers to serve the public in utmost good faith.

It is only by harnessing the value of big data technologies that the (re)insurance industry can properly evaluate the financial risk posed by floods, windstorms, hurricanes, earthquakes, volcanoes, cyber and terrorist attacks, and fraud. The big data approach allows everyone (catastrophe modelers, risk managers, loss adjusters and underwriters) to access and share insights with the peace of mind that the blockchain provides. This guarantees the veracity of the underlying data and makes it independently verifiable by auditors and regulators.

Resumen

Progress in the insurance digital space will be driven by successful innovation, including the adoption of fast-emerging disruptive technologies such as blockchain.

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Por

Shaun Crawford

EY Global Vice Chair – Industry

Impulsar soluciones diseñadas para reformar los mercados globales y la industria a través de la convergencia y la disrupción.