These days it seems everyone is talking about blockchain. Major insurance companies are investing into it, consortiums are forming around it, and investors are pouring in capital. While still early days, evidence suggests blockchain technologies will create significant commercial and economic value for the industry.
Blockchain is essentially a permanent and immutable record of transactions within a network. At the root of the blockchain are ‘digital ledgers’ that are distributed amongst all network participants to serve as a common source of truth. When a transaction is conducted, it is recorded in sequence in the digital ledger and these ‘blocks’ are then tied together into a blockchain. Since the system relies on references to other blocks that are cryptographically secure within the digital ledger, it is almost impossible to falsify. Most observers therefore believe the system to be immensely more trustworthy and transparent than traditional approaches to sharing data across a value chain or even within an enterprise.
We are seeing some of the most proactive insurers looking to blockchain to help drive their wider transformation agenda within the context of the ‘data-driven fourth industrial revolution’. These first and second-movers see the value in participating in the broader financial services blockchain ecosystem. But they also see blockchain as an opportunity to improve efficiency, lower the costs of transaction processing, enhance the customer experience, improve data quality, increase trust between parties and support auditability, among other benefits.
Blockchain can help insurers drive value through:
However, blockchain also has the potential to disrupt existing business models by eliminating the need for intermediaries. Even now, the impact of cat bonds on the reinsurance market is having unexpected consequences on direct insurers.
Many industry players have been investing to support their vision. For example, Lloyd’s London Market has included blockchain as part of their target operating model or TOM initiative1, while AXA Strategic Ventures (along with other partners) invested around US$55 million into a blockchain startup in February 20162. And in October 2016 Aegon, Allianz, Munich Re, Swiss Re and Zurich launched the Blockchain Insurance Industry Initiative B3i aiming to explore the potential of distributed ledger technologies to better serve clients through faster, more convenient and secure services.3
We believe that blockchain will play a major and disruptive role right across the insurance value chain. From customer onboarding and ‘Know Your Customer’ (KYC) requirements through to claims processing and adjudication, the potential use cases for blockchain in the insurance sector grow each day.
One of the more disruptive applications of blockchain is the development of ‘smart contract’ models. Smart contracts contain self-executing protocols that work with a blockchain to enforce the performance of a contract across all counterparties. Claims data is shared across all counterparties. Identities and contract provisions are immediately verified. Payments are automatically made. And, as a result, less adjudication and negotiation is required and costs are minimized.
We see many applications for blockchain technology, below are just a few possibilities:
Personal accident insurance – create a transparent and seamless claims journey that dramatically improves customer satisfaction.
Record keeping – leverage blockchain to create, organize and maintain company records in a single, reliable and accessible repository.
Digital identities – use blockchain data and digital ledgers to digitize and validate customer information and improve compliance.
Claims management – automate the verification of coverage and streamline claims settlement to improve operational efficiency and remove costs.
Peer-to-peer – build a peer-to-peer network to establish smart contacts without the need for intermediary or administrator.
What’s going to change?
Having mapped the impact of blockchain across the insurance operational ecosystem we have identified key areas of change for activities throughout the enterprise. Some of the processes impacted include policy sales, incident management, claims management, reserve calculations, reinsurance, underwriting, fraud and risk determination. To learn more, please download our recent report – Blockchain accelerates insurance transformation.
We believe that unlocking the value of blockchain must start with intense collaboration across the value chain. Insurers will need to cooperate closely — sharing technology platforms and standards — to drive adoption. They will need to develop the ecosystem of technology providers, start-ups, investors and regulators. And they will need to work together to overcome the barriers slowing adoption.
They will also need to take a business-focused approach, both within their four walls and across the insurance ecosystem. Understanding the value and impact of other enablers, such as big data, digital labor and analytics, will also be key to maximizing the value of blockchain investments.
Actions executives can take now
Those that start participating in these types of collaborations and focusing on business-led solutions and new technologies will be well positioned to take advantage of new opportunities as they emerge.
KPMG’s Digital Ledger Services has Partners and professionals operating in more than 30 countries to provide life-cycle based blockchain consulting combined with technical prototype development. Please contact your local KPMG office for more information, or email email@example.com.