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Blockchain and certificates of insurance

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Those who attend insurance industry trade shows cannot but be struck by the near-breathtaking pace of technologic innovation on display. For example, one entire industry sector – personal lines – is being relentlessly savaged by tech startups (including newly-formed special purpose carriers) with the net result of efficiencies and significant economics for purchasers of home, life and auto coverage gained through disintermediation (no more middleman brokers), cloud and telematics. Need I add all this can be done on your smartphone? Of course. And this is just the beginning...

This is all exciting stuff, but it pales in potential significance of what is to come. The insurance industry, after all, is gigantic. Depending on who's doing the counting, it represents as much as 6% of global GDP. Historically, however, the industry is a technologic laggard, cautious to adopt and entrenched with legacy systems decades old. Overcoming this inertia will be painful, and expensive, but the reality is the train has left the station and forward-thinking carriers are getting on board.

Which brings us to blockchain.

How many can explain blockchain? Raise you hands. Ok, I see one in the back.

Think of a secure database available to members of a group. Nobody owns or controls it or the data it contains. Sounds a lot like the Internet, right? Only this is transactional recordkeeping, like an accounting ledger. You can enter records into the database but once entered they cannot be changed. Every related record is linked to the ones that preceded it, hence the term "chain." Every record is accessible to all members, transparency is assured, anonymity may or may not be optional. The result is a historical, chronologically-ordered series of entries. The real power of this becomes apparent when you layer computational logic on the ledger, essentially programming the database to trigger transactions and events.

Bitcoin, the (in)famous virtual currency, was the earliest public instance of a blockchain in action. Swiftly adopted by certain black markets, it became a handy way to transfer money invisibly. Now, banks and financial institutions have become obliged to reckon with this force. The federal government is writing banking rules. Virtual currency has become a venture capital adventure of startups and wind downs, but the underlying concept is valid and it is clearly here to stay.

There is a burgeoning chatter in the insurance industry about what this all means. 15 carriers have organized an initiative call B3i to study the implications and possible applications. The appeal of blockchain lies in its inherent efficiencies. A shared, transparent record of contract-related information could transform data transfer, accuracy and customer service. The ever-growing threat of fraud could be reduced; "smart" contracts could provide insurers with the means to manage and enforce claims in an irrefutable manner.

Which brings us, finally, to certificates of insurance.

Consider this - blockchain works well in the following situations:

  • When multiple parties share data.
  • When multiple parties update data.
  • When there is a requirement for verification.
  • When intermediaries add cost and complexity.
  • When interactions are time-sensitive.
  • When transactions are inter-related or dependent on each other.

Now you get it. I can hear the "ah-ha" moment.

Here, at last, is your common repository of real-time insurance policy data, verifiable directly from the source. (No more broker-issued COIs.) All coverage and all changes present and accounted for, in order, including additional insured, exclusions, endorsements and cancellation notices. Wow...

The insurance industry probably faces a smaller cultural and regulatory mountain to climb than does banking and other sectors. But it is still a very non-trivial matter, and farther off than many would like. Experts say decades, but maybe not. One thing we should all agree on is that blockchain is not disruptive, it is foundational and will ultimately alter commerce in ways just as profound as the impact the Internet has had on our social and cultural behavior.

Any takers? Count me in.

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Very interesting. It would help identify those insurers who frequently change carriers. It would be extrememly helpful to verify actual coverage and prevent the "binders" who try not to incur the expense of having an active policy.

Totally get it. I have long advocated for placing policy information in a "cloud-like" environment and then allowing the Insured to have access and, in turn, allowing others with whom they do business (e.g., Certificate Holders) to have limited access as well, at the Insured\'s discretion. Takes the broker out of the loop of what has become a true boondoggle and allows them to get back to helping the Insured manage risk and provide true value-added service.

It will be interesting to see how our industry, which is slow into cloud and very concerned about customer data privacy embraces Blockchain. And I just can't help but wonder how intentional or unintentional errors in the chain are corrected?

To me, one of the best under reported uses of Blockchain will the ability for carriers to sell only what they are good at underwriting or want to take on as risk, and the consumer could buy all the products they need regardless of carrier and have their own custom built policy or policies. I will say however, all this talk about cutting out the broker puts a lot of assumption for the buyer to understand what they need. Yes Broker habits have to change, but the commission they make is still revenue that most companies will keep. Even Peer to Peer models will find rising costs as they grow. Between AI, Machine Learning, Blockchain this will be exciting.

I would not see "cutting the agent / broker" out of the equation. They need to understand their client and how their business evolves. Insurers can't respond to need for Certs fast enough in a lot of cases. I'm not sure what controls would be possible to prevent Certs being issued that are beyond the authority of the issuing entity, e.g. agent / broker issuing a Cert that is not for the usual operation and that the insurer may wish to underwrite before committing. This would be ideal for "cookie cutter" situations though. UIIA jumps to mind.

Not surprised, great content..