Blockchain: a revolution in the world of insurance?

At the heart of the digital revolution, Blockchain makes it possible to store information permanently and reduce the number of intermediaries. Widely adopted by many sectors, the world of insurance is also looking into ways in which this technology can be used, focussing specifically on “smart contracts”. Let’s explain a little.

 

What is Blockchain?

Blockchain is a secure and transparent information storage and transmission technology operating without a central point of control (definition from Blockchain France). Released in 2008 with Bitcoin, which was its first application, Blockchain has continued to interest key players, professionals and institutions with its benefits and cost-cutting promises.

This technology is characterised by three main features: the ability to transfer any type of asset, the notion of an unalterable and transparent ledger and the ability to automate contracts with the guarantee that the terms cannot be altered: smart contracts.

The banking, advertising and tourism sectors have already shown an interest in this technology and the insurance world will not be outdone. The sector’s key players are increasing trials and are eager to acquire specialised start-ups.

 

Smart contracts, a new method of loss management?

Insurance companies are particularly interested in “smart contracts”. These autonomous programs, which execute the conditions of a contract that have been pre-validated by the parties involved, make it possible to overcome the control requirements that are inherent to certain tasks, such as premium requests or compensation pay-outs. In addition, they promise to reduce management costs for insurers and processing times for policyholders. Blockchain could potentially make declarations for very straightforward claims obsolete. In the event of an incident, a message sent from a smartphone would be sufficient to notify the insurance company. The system would be able to automatically apply the terms of the contract and process any compensation payments.

Although it’s still in its infancy, Blockchain does seem to represent a guarantee of future security for insurers; however there are some aspects which deserve a special mention.

 

Delayed deployment of Blockchain in the insurance world

The introduction of incorrect or falsified data, made permanent by the very principle of Blockchain, could alter policyholders’ rights. Fortunately, reliable data approval mechanisms have been developed to protect against this risk.

The immutability of Blockchain is also incompatible with the GDPR as it contravenes the right to erase or limit the storage of data over time. In France, the CNIL has been trying to find a solution to this issue before the GDPR comes into force in May.

The multiplication of data sources in Blockchain increases the risk of the theft of policyholders’ personal data. Cryptography must therefore be used to protect against this risk.

These new practices will also be accompanied by internal changes, with the appearance and disappearance of certain functions and the redefinition of many governance procedures.

Other challenges await insurers, such as the emergence of Insurtechs. These start-ups, operating in the field of insurance, have been proactive in removing obstacles to its use in order to deploy innovative services. Etherisc.com has developed a travel insurance system that automatically compensates passengers for late flights.

 

Georges-Eric PFISTER – Information Technology loss adjuster

Find out more about his area of expertise