The Impact of Blockchain on the Insurance Industry

October 6, 2021

Over 560 blockchain startups operate worldwide. The technology brought out an exciting dimension to how businesses operate, with many use cases built around transparent data sharing, record keeping, decentralization, consensus-based authentication, and smart contract-based decisioning. The industry is slowly but surely moving from research to PoCs and implementation. 

A very limited number of applications and PoCs make it worth the shift into the production phase, but those cases are rather impressive. The insurance industry, in particular, has a vast potential for blockchain-driven innovations solving multiple pain points across the insurance value chain, owing to its reliance on disparate systems involving multiple participants with a high scope of data sharing.

We analyzed blockchain projects and prototypes by 27 large insurance incumbents globally and identified two predominant blockchain use cases and applications in the insurance world: policy administration and automated payout – with 30.3% and 21.2% of blockchain projects, respectively. Claims management/verification, new product/platform development, and record-keeping were the other key areas where insurance incumbents are developing blockchain applications.



Source: The Blockchain Strategy of Major Insurance Incumbents

Claims management is among the most critical areas of continuous development and innovation adoption. An estimated 5% to 10% of all claims are fraudulent. According to the FBI, the total cost of insurance fraud (non-health insurance) is estimated to be more than $40 billion per year. That means insurance fraud costs the average US family between $400 and $700 per year in the form of increased premiums.

Examples span across consumer and commercial insurance products. The Insurwave platform, for example, built on the Corda blockchain, is put into production by A.P. Møller-Maersk, Microsoft, Willis Towers Watson, XL Catlin, MS Amlin, EY, Guardtime, and ACORD. According to R3, the solution is able to:

  • Create and maintain asset data from multiple parties;
  • Link data to policy contracts; to receive and act on information that results in pricing or a business process change;
  • Connect client assets, transactions, and payments;
  • Capture and validate up-to-date first notification or loss data.

R3 claims that Insurwave can provide three significant benefits: reduced costs, revenue uplift, and compliance. All parties have real-time visibility into the location, condition, and safety of high-value assets moving around the world, which leads to more accurate, dynamic, and fair underwriting & pricing. Participants also realize operational savings from streamlining large risk management, policy amendment, and claims processing staff.

IC_Thursdaynewsletter_branded images-22.png

Source: Blockchain Technology in the Insurance Sector

Allianz Global Corporate & Specialty SE (AGCS) is another example. The company has successfully trialed blockchain technology for a global ‘captive’ insurance program, including cash transfers between countries. AGCS’ Allianz Risk Transfer (ART) line of business has teamed up with EY as blockchain advisory service provider and digital agency Ginetta to successfully create a blockchain prototype solution for the existing captive insurance program of a long-standing ART customer with global reach. In connection with this prototype, ART also joined forces with Citi Treasury and Trade Solutions, which provided the payment processing services related to Allianz’s blockchain prototype. Allianz reported that the results prove that blockchain technology can significantly improve the efficiency of corporate insurance transactions internationally.

Allianz explains that captive insurance programs are one of the most complex areas of commercial insurance. They are established by multinational organizations which self-insure instead of purchasing insurance. They create their own self-insurance programs or ‘captives,’ which pool together selected assets or insurance exposures from their global operations, collecting premiums from each of their operating companies and paying out claims internationally as they arise. The Allianz captive insurance blockchain prototype, built on Hyperledger Fabric 1.0, focuses on two types of insurance policies – Professional Indemnity and Property – for a captive insurance program with local subsidiaries in the US, China, and Switzerland.

“Our captive insurance blockchain prototype demonstrates that regular transactions and cash transfers between fronting insurers and clients can be significantly accelerated and simplified,” said Yann Krattiger, Principal at ART. Automated processing replaces the exchange of thousands of emails and massive data files. In addition, each process is transparent and can be tracked in real time. As a result, our customers benefit from increased speed, reliability, and auditability.

Many insurance companies are teaming up into alliances to explore the opportunities at the convergence of blockchain technology and the business of insurance in collaboration. For example, at the end of 2017, 15 companies — Achmea, Aegon, Ageas, Allianz, Generali, Hannover Re, Liberty Mutual, Munich Re, RGA, SCOR, Sompo Japan Nipponkoa Insurance, Swiss Re, Tokio Marine Holdings, XL Catlin, and Zurich Insurance Group — came together to form B3i to explore the potential of using DLT within the re/insurance industry for the benefit of all stakeholders in the value chain.

In April 2018, another alliance was formed: Cognizant and a consortium of Indian life insurers — comprising SBI Life Insurance, Max Life Insurance, Canara HSBC OBC Life Insurance, Edelweiss Tokio Life, IDBI Federal Life Insurance, Birla Sun Life Insurance, HDFC Life, Kotak Life, Tata AIA Life, PNB MetLife, IndiaFirst Life Insurance, ICICI Prudential Life Insurance, Bharti AXA, Aegon Life, and SUD (Star Union Dai-ichi) Life Insurance — announced that they have developed a blockchain solution to facilitate cross-company data sharing. This is expected to enable the insurers to reduce the risk of data breaches, fraud, and money laundering, while delivering a superior experience to customers through improved process efficiency, better record-keeping, and accelerated turnaround time. Built on Corda, the solution is expected to help these insurers reduce their reliance on data intermediaries and aggregators to obtain customer and policy details for a wide range of critical purposes, such as KYC due diligence and financial and medical underwriting risk assessment, fraud detection, and regulatory compliance.

Earlier, in January 2018, Generali Global Corporate & Commercial Italia, AIG, and UnipolSai Assicurazioni as insurers, with Aon and Willis Towers Watson as brokers, and support from Capgemini in Italy have implemented, as the companies claim, the first solution in the Italian insurance market to minimize inefficiencies and improve the service to clients in the risk evaluation and placement phase. In addition, Generali Global Corporate & Commercial Italia expects the initiative to improve simplification, transparency, safety, and efficiency in the information sharing processes between intermediaries and insurance companies thanks to blockchain technology.

Generali Global Corporate & Commercial Italia explains in the official press release that to guarantee an accurate and timely corporate risk evaluation and placement, a large amount of data must be processed and exchanged through continuous information flows among clients, brokers, and insurers. The current inefficiencies in the operational processes and the need to comply with a constantly evolving regulatory framework led the group of companies to define some risk data communication standards, starting from the property risk, and to assess the available technologies to increase the automation of the quoting and binding processes, which are currently performed manually.

The companies started working together in June 2017. The platform was released after two months of development, enabling insurers and brokers to share the information for the quotation in real time and prepare policy documents that are verifiable and easily trackable. This process occurs through a permissioned ecosystem based on the R3’s Corda. Furthermore, Generali claims that this solution will also guarantee to manage and reduce by up to 90% the negotiation and quotation timing, as well as to improve the quality of the shared information thanks to the agreed standardized data model exchanged via the private blockchain.

IC_Thursdaynewsletter_branded images-21.png

Source: So maybe you figured out what blockchain is — but what can you do with it?

There is a range of initiatives across use cases launched by insurers to experiment with blockchain technology and find the most useful application for scaled deployment.

To learn about Prove’s identity solutions and how to accelerate revenue while mitigating fraud, schedule a demo today.

Keep reading

See all blogs
Prove’s Brad Rosenfeld Explains the New Customer Onboarding Process on Fast Company

No longer confined to top-of-funnel engagement and brand awareness, CMOs are now leading efforts to shape the entire customer experience journey.

Kaushal Ls
June 6, 2024
PYMNTS TV: Prove CEO Rodger Desai Explains Need for Phone-Based Approach to Authentication

Prove’s CEO Rodger Desai was featured recently on PYMNTS TV, where he met with PYMNTS CEO Karen Webster to discuss trends and shifts in the identity verification market.

Kaushal Ls
June 4, 2024
Prove’s Tim Brown Explains How to Reduce Fraud and Improve Onboarding with Identity Verification

Reporters from GreenSheet, a popular publication that highlights trends in the banking, financial services, and fintech markets, recently met with Prove’s Global Identity Officer, Tim Brown to learn how advanced identity verification solutions are driving faster and better digital customer onboarding.

Kaushal Ls
May 21, 2024