6 minute read
New kids on the block
New kids on theBlock Is blockchain the gateway technology to true insurance innovation?
Etymologically speaking, blockchain is exactly what it says on the tin.
A decentralised ledger that, among other things, facilitates the process of recording and tracking assets (house, car, land, etc), each unique transaction is encrypted and grouped into ‘blocks’ of data. Once filled, they are linked to previous blocks of data, creating the immutable chain of record that sets this apart from traditional, table-based data stores.
Most widely used for exchanging cryptocurrencies, blockchain’s decentralised nature allows almost complete transparency, as those with access to it in its public, private or
Giant leap:
Insurers will face an opportunity that’s ‘too big to miss’
permissioned-access formats, can see transactions in real-time.
Most of the financial sector has warmed to the technology, but insurers remain more tempered. Noise around blockchain use in the sector has grown louder, though, in the last year. Currently still experimental, its adoption by insurance is guaranteed due to other, existential forces, affecting the industry.
“The emergence of decentralised finance non-fungible tokens and, more recently, the metaverse should lead, as any new technology will, to new insurance needs,” says Olivier Jaillon, chief executive and chief product officer of embedded insurance provider Wakam.
“Therefore, an insurance market related to these products should emerge with a progressive standardisation of available insurance products.”
Olivier Jaillon, Wakam
Wakam is a B2B insurtech that provides bespoke, white-label embedded insurance solutions for insurance companies. With a focus on both usage-based and self-service insurance, clients can ‘create their own product’ when it comes to insurance staples like health and wellness, professional and mobility, as well as more specialised markets – for example, renters or micro-insurance. As well as using APIs for its embedding process, Wakam has a history with blockchain technology.
In 2018, the company was one of the first in the industry to utilise a private blockchain in its management system, initially using Sequence by Chain, and then Quorum. Its private nature allowed Wakam to freely exchange information with clients and record a high volume of their transactions, which clients could oversee in real time.
“We opened our blockchain and created our first insurance policies using it, over two years ago,” says Jaillon.“Today, there are 600,000 active contracts across various insurance products. This grows by 10 per cent each month, in line with our partner growth. This makes us one of the biggest case studies in the world.”
Wakam has recently adopted the Tezos blockchain ecosystem, in the process becoming what’s known as a ‘corporate baker’ as it transitions from private to public blockchain use.
The Tezos (XTZ) blockchain uses a consensus algorithm based on a liquid proof of stake mechanism (LPoS). Block creators, called ‘bakers’, fulfil – in an eco-friendly way – the same role as ‘miners’ in previous blockchain generations. Each block is created by a randomly selected baker, endorsed by other bakers, and validated by the rest of the network. Bakers put up their stake in Tezos as collateral to ensure that blocks are validated correctly, incentivising network participation and ensuring network security. By becoming a baker on the Tezos blockchain, Wakam joins more than 350 bakers around the world who participate every day in securing the network.
The scope of blockchain is not limited to data storage, as Wakam has found: insurers can integrate the technology in almost every automated process.
ClaimShare is an insurtech working in the fraud and risk assessment field, which uses blockchain to allow insurers to collaborate and enhance their fraud detection systems. It’s aimed at detecting ‘double-dipping’, whereby a customer makes multiple claims for the same event with different insurers. This duplicate claim filing is thought to be responsible for five to 10 per cent of insurance fraud but has, hitherto, been virtually undetectable because there is no industry data-sharing standard and regulation anyway restricts the sharing of sensitive, personal information. ClaimShare uses the private Corda blockchain to allow insurers to put public claims data on a ledger so that others can check if any claims they’ve received have already been paid out.
In motor insurance, State Farm and United Services Automobile Association (USAA) are examples of companies that have fully integrated blockchain technology into their subrogation claims processing. It followed a two-year trial to see how effective blockchain was in relieving both organisations of the laborious paperwork attached to pursuing third parties responsible for their respective customers’ losses. They are now inviting others to join the network.
“Blockchain could change insurance forever, it is such a clear use case,” says Leon Gauhman, founder and chief product and strategy officer at digital consultancy firm Elsewhen. “However, regulators are nowhere close to dealing with it.
“There is a lot more to be done on lower-hanging fruit. Insurance today hasn’t changed much in terms of manual processes, the customer experience, in most cases, is shocking.”
Gauhman highlights a stubborn issue still holding back insurers when it comes to trying new things: as one of the oldest businesses in the world, it relies on the principle ‘if it’s not broken, don’t fix it’.
A recent study by the Capgemini Research Institute found that, out of 204 insurance organisations interviewed, only 18 per cent could be called what Capgemini defines as a ‘digital master’. These findings showed that most insurers don’t have the technical capabilities or work culture to handle the plethora of data at their disposal, let alone feel comfortable with blockchain innovation.
“[Insurers] inevitably have to introduce these changes because this is where we are going,” says Gauhman. “It will also come from the pressure being applied by employees themselves, who want more efficient ways of working.”
Leon Gauhman, Elsewhen
Insurers who are not willing to take risks with new technology, stand to lose out on evergreen gains, says Gauhman.
He theorises an alternative type of insurance, mirroring what’s happening elsewhere in the financial services industry.
“I wonder if something will start emerging, alongside the alternative financial services system and alternative internet that is starting to emerge, which will have insurance products?” he says.
“And then the opportunity will be too big to miss.”
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