The Insurance Industry: Blockchain Technology has been developing rapidly lately and it has been attempting for several years to transform not only the traditional monetary system, but also various other industries. At first, Banks were against Blockchain technology, but they we’re one of the first that adopted the new wave. The final monetary technology picture is still vague, but for the “younger brothers” of banks and credit societies – the insurance companies, the benefits for implementing Blockchain Technology seem quite clear. The founders of fintech company Worldcore explains why.
The insurance industry is evolving
Today, the insurance market has grown into a global network of economic relations with a turnover in 2017 of 4.2$ trillion and payments of around 2.6$ trillion US dollars.
Despite the industry offering dozens of types of insurance, their problems remain the same:
- How to avoid fraud by clients;
- How to calculate the insurance premium correctly to avoid operating at a loss in the event of adverse circumstances? On the other hand, to avoid narrowing the revenue base which may scare potential clients with a high premium;
- How to find a successful insurance product, staying one step ahead of the client’s needs?
The nascent Blockchain industry could not pass by a large insurance and reinsurance market of about 5% of the gross world product. Already at the beginning of the Initial Coin Offering boom back in 2017, InsureX later renamed iXledger, entered the market, embracing the B2B offer for insurance companies to simplify the process of customer interaction through a distributed registry and events operation based on smart contracts. And after a successful Initial Coin Offering, together with a renowned reinsurance market player Gen Re Corp., they are still designing the concept of effective implementation of Blockchain systems into the insurance industry, at the moment being the only working Blockchain project in the insurance industry.
This experience, which seemed isolated at the end of 2017, was then adopted by other insurers. Today, there is a galaxy of Initial Coin Offerings for crowdfunding insurance products and reducing the transaction costs of finding insurance and reinsurance business partners. However, it is impossible to call these products a full-fledged implementation of Blockchain Technology into the insurance industry, since most of them are conventional Customer Relationship Management Systems (CRM) with data storage not in cloud but on the Blockchain.
Blockchain Technology will change many industries
“Insurance is an excellent niche for using Blockchain in the service environment around us,” – said Alexey Nasonov, Head of the fintech company Worldcore.
“Every insurer’s curse is Know Your Customer policies. They are being solved now by a multi-level system of data exchange between insurance companies. As for individuals, they are traditionally shielded by personal data protection laws that hide the client history from insurance companies, so it can only be made available at the request of a court or investigation. However, the global insurance Blockchain can make all the data instantly available and encrypted (to prevent downloads from unauthorized sources) simultaneously. In the insurance contract, you simply need to include the requirement of passing the encryption keys to the insurer, and that’s it.”
The many benefits that the insurance industry gets from distributed registries and the usage of smart contracts are quite obvious. First, free access to contacts will allow the world to have information about the insured person or property just by the will of the interested party to the contact. The number of encryption keys defined by the contract will enable to delineate the levels of access to data and the smart contract will determine the terms of validity and the essential terms of insurance policy.
As a result, the client receives an automatic insurance compensation or insurance support, since the validity of the event for which it is paid, as well as the right to receive compensation, is confirmed by the continuity of records in an insurer’s Blockchain. Second, keeping both the client’s insurance history and information about the integrity of the insured, which can’t be forged, will reduce the risks of underwriting and will cut the overall cost of insurance.
The Insurance Industry can only benefit from Blockchain Technology
To do this, the policyholder only needs to give his consent to store such data, then to encrypt them with his or her key and provide insurers on request. And the guarantee from counterfeits will be an insurer’s signature under each record and the impossibility to erase anything in Blockchain records. And the information about the policyholder can easily be extended to usage-based insurance framework, where the policyholder’s behavior is the input parameter of complex scoring models that calculate the size of insurance premium.
Third, the convenient packaging of purchased insurance portfolios for the reinsurance market may be the issuing of certain tokens of primary insurance companies. At the same time, the number of redeemable tokens means the level of risk assumed by this reinsurer. Nevertheless, despite all the obvious advantages, at the moment the number of Initial Coin Offering projects in the insurance sector is small. Worldcore’s CEO Alexei Nasonov explains:
“The main problem of implementing Blockchain Technology into insurance business lies not in the field of technology, but in the sphere of human relations. Traditionally, insurance is a very conservative business with really delicate information held by underwriters. Its publication in the Blockchain, even in encrypted form, is a reputational risk for the insurer. All these high-profile Cryptocurrency exchange breaches and data thefts in recent months proved this twice. Compare, for example, iXledger’s whitebook in 2017 during its ICO, when it was still InsureX, and now. Currently, the company already declares two levels of data security: low in the Ethereum Blockchain, where technical data about transactions and smart contracts are stored, and high one, that is dedicated to personal information OrientDB-based storages.”