Bitcoin’s unprecedented 2017 surge dominated the year-end financial news and introduced its revolutionary supporting technology into mainstream finance and technology discussions around the world. For many, this recent news cycle was their first introduction to blockchain, the distributed ledger technology that enables the existence of cryptocurrencies; essentially, blockchain is a digitized, decentralized public record of transactions stored across a peer to peer network–a distributed database that maintains a continuously updated record of ownership and value.
I’ll be honest, I didn’t get it at first–not in the sense that I didn’t think it would have a profound impact on the way live, work, and exchange value with each other globally, I mean I fundamentally did not understand it. Over the past two years, I’ve read a lot of definitions about what blockchain is and isn’t, my favorite coming from Steve Nutall via Fifth Quadrant’s CX Spotlight:
Think of this digital ledger like a Google Doc. The traditional model of collaborating on a document was to use the "track changes" feature. You'd send me something; I'd open it, modify it, save it and send back to you. But on Google Docs we can work on the same doc simultaneously with each change being recorded instantly. Similarly, on the blockchain, we simultaneously see and update the ledger, of which – despite being distributed among many people - only a single version exists. Via this global, shared and trusted network, we can transfer and validate data, value, documents at scale without lengthy processing times, expensive processing fees, or intermediaries. The benefits of this digital ledger technology are trust, transparency, speed and efficiency.
So what? I don’t have bitcoin. While blockchain was invented to enable the best known and most valuable cryptocurrency, most believe that blockchain’s potential use far outpaces Bitcoin itself, or any other cryptocurrency. Aegon, Allianz, Munich Re, Swiss Re and Zurich have launched the Blockchain Insurance Industry Initiative B3i, which aims to explore the potential of distributed ledger technologies. Many other carriers and insurtech startups are following suit with their own explorations of how blockchain can transform their businesses. Among insurers, there is a belief that underwriting and claims processing are the strongest immediate applications.
Below are some of the key areas where we believe we will see blockchain will having the most significant impact on customer experience in insurance.
Security & Privacy
Insurance customer data has always been a high value target for hackers, as it combines personal financial and health data. Insurance providers have sought to prevent data vulnerabilities with strict security compliance measures, though outpacing the threat of cyber criminals is a difficult race of constant vigilance. Committing budget and human capital to staying on the forefront of cyber security trends is crucial to securing customer data, and along with these efforts, the blockchain’s inherent structure can further protect the security and privacy of insured parties.
A central component of blockchain technology is private key encryption, which for this article, we will broadly reference as cryptography. Cryptography is used to create a secure digital identity reference between customer and carrier. Additionally, blockchain-based security is predicated on distributing the evidence among many parties, which makes it impossible to manipulate data without being detected.
The combination of private key encryption and decentralized storage enables increased security and protection of data and identity, further reducing the barriers along the complete customer journey.
Trust & Transparency
As we’ve discussed elsewhere, trust is a major barrier to online insurance purchases. A full 80% of people do NOT believe online insurance quotes are accurate. Running Comprehensive Loss Underwriting Exchange (CLUE) reports can be expensive for carriers and without them, customer and carrier are often working with incomplete and/or inaccurate information that undermines the integrity of their quote. Without knowing how information is being used or why it’s being asked, customer trust quickly erodes and they need to speak with an agent to complete their transaction. The free flow of information enabled by the blockchain and its cryptography will engender a higher degree of trust and transparency on both sides of the coin, with clear benefits to both customers and carriers. Equipped with accurate customer data, carriers will be able to provide customers with far more accurate quotes that will in turn create more trust with their customer and eventually enable more customer self service. Once customers start trusting online quotes, they will soon stop picking up the phone to complete their transactions with an agent.
We’ve also learned from our research that the more transparent insurance carriers are about why and how they will be using customer data, the more comfortable customers are sharing their data and completing transactions online. Because blockchain can eliminate the need for third parties to validate data, it can facilitate more direct communication between customer and carrier throughout the quoting process, giving insurers more opportunities for transparency. If an entire claims transaction, including payment, is supported on a carrier’s blockchain, financial intermediaries are removed and the carrier has complete control over the customer relationship. On the carrier side, blockchain will lead to a reduction in insurance fraud. When blocks are built, the data shared is immutable, reducing fraud and the need for third party intermediaries. As reported by Bernard Marr in Forbes, an estimated 5 to 10 percent of all insurance claims are fraudulent. An insurers ability to record transactions on a blockchain throughout a policy’s lifecycle, from quoting and binding to claims and other servicing, enables an immutable and auditable record of activity. By maintaining the integrity of any transaction’s history, blockchain technology can minimize counterfeiting, double booking, and document or contract alterations.
While fraud reduction provides an obvious benefit to carriers, it also benefits customers, who, without insurance carriers having to account for potential fraud in their pricing, can expect to save on insurance premiums.
Speed & Efficiency
The second half of improving quotes and claims processing lies in speed and efficiency. With current claims processing bogged down by an inefficient exchange of information, the excessive use of middlemen, fragmented data sources, and an overly manual process for review and processing, the blockchain promises a streamlined capability for reducing the overhead and risk of claims processing, dramatically improving its overall speed. The blockchain does this through the use of smart contracts. Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. Smart contracts allow trackable and irreversible transactions without a third party. Smart contracts have the ability to communicate with other smart contracts, creating a chain of efficiencies whose resolution time is extremely fast–converting paper based processes that may have taken weeks or months to a matter of seconds. Mark Bloom, global CTO at Aegon outlined one such use case tackled by the aforementioned B3i blockchain coalition in CIO Applications:
As the first project, the group decided to focus on reinsurance as that part of the insurance value chain is currently dominated by paper contracts…in the current situation, the focus is on a paper document that is then translated to digital metrics that are entered into a computer system. Distributed ledger technologies such as blockchain allow us to start with the key metrics in a digital shared ledger and turn that into a legal document…This greatly reduces the work, associate risks, and needs for further manual reconciliations. These digital contracts are smart because they contain operational logic and to some extent and execute themselves, which further increases efficiency and reduces operational risk…In terms of time, it could mean that the processing of all relevant data as premium and/or claims payments between insurer and reinsurer can be a matter of seconds instead of the months that the traditional paper process can take.
Furthermore, smart contracts can automate the process of engaging repair and assistance providers (such as towing or autobody professionals) to fulfill claims, enable an automatic protocol for human consultation for complex and unique risks, and provide automatic payment and an immutable, transparent proof of claim settlement.
We are only now just beginning to see insurers invest in and adopt blockchain technology and in this article we’ve only touched upon a few of the many transformative possibilities for improving the industry’s customer experience. I personally believe the blockchain will completely revolutionize the way customers interact with all financial and federal institutions in ways we haven’t yet contemplated–to the same extent that we’ve seen the global adoption of the internet fundamentally change the way we interact with each other. I would recommend that every carrier deeply investigate the promising possibilities of building with the blockchain and leverage the power of this disruptor to improve their products & services and the way they do business as a whole.