Blockchain may be a new panacea for insurance. First a definition. This one comes from Investopedia.
A blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions. Constantly growing as ‘completed’ blocks (the most recent transactions) are recorded and added to it in chronological order, it allows market participants to keep track of digital currency transactions without central recordkeeping. Each node (a computer connected to the network) gets a copy of the blockchain, which is downloaded automatically.
Originally developed as the accounting method for the virtual currency Bitcoin, blockchains — which use what's known as distributed ledger technology (DLT) — are appearing in a variety of commercial applications today. Currently, the technology is primarily used to verify transactions, within digital currencies though it is possible to digitize, code and insert practically any document into the blockchain. Doing so creates an indelible record that cannot be changed; furthermore, the record’s authenticity can be verified by the entire community using the blockchain instead of a single centralized authority.
So how does this A) impact insurance and B) help insurance. That question is answered by Allstate claims executive Dale Sherman. He said, “Blockchain has the potential to revolutionize underwriting.”
He made the comment at the recent Claims and Litigation Management Alliance’s annual conference. Sherman then gave an example. He said having a policyholder’s financial, health and credit information in one, secure place means insurers can offer more personalized coverage.
“Coverage could be just-in-time or on-demand. You can imagine mile-by-mile insurance for a specific individual based on their very specific, idiosyncratic risk profile that would change in value, and there could be a bidding marketplace. Blockchain could enable that in real time depending on where they are going,” Sherman said.
CenturyLink’s claims director Tara Action said the concept is also good for commercial insurers. It can be used to reduce costs and make transactions easier especially when considering catastrophe loss implications. “The ability to process those large catastrophic losses with one proof of loss that’s shared amongst everyone … we could dramatically reduce the administrative costs and friction for insureds in that space,” she said.
She thinks efficiencies from Blockchain technology could eventually simplify claims. The main problem right now — she notes — is Blockchain will require insurers to share information and insurers are reluctant to share information with others.
At a different event — the Casualty Actuarial Society’s 2018 Ratemaking and Product Management seminar — Willis Towers Watson’s senior economist Ramada Sarasola said the technology lets users that don’t know each other transfer money and other things of value without using an intermediary like a bank.
“I can transfer value, I can transfer information, and I can transfer ownership. It can be delivered in a safe and secure way. It won’t be corrupted, and it will get to the right person,” she said.
Blockchain can also execute contracts automatically.
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