Does insurance need blockchain?
The answer is NO if the industry wants to continue as is. Customer trust is low, and expectations have changed. The industry is slow to adapt to the changing digital environment with policyholders still interacting in traditional methods. I continually hear about the pressures on costs and how the industry is hampered by legacy systems, manual processes and poor data but little is really done to move the dial.
If the industry wants to change and focus on the customer, then the answer is YES. There is ample evidence that not only does the industry need blockchain but also of the benefits enjoyed by early adopters. One concrete example comes from a specific challenge that we have been set at Blocksure.
We were asked if our blockchain platform, Blocksure OS, could effectively deliver microinsurance across a number of markets in South East Asia (we will announce details of this project separately soon). There are many elements to successful adoption of microinsurance in any market – I will focus on the technology and processing aspect of sales, policy administration and claims reporting/payment.
Microinsurance is the protection of low-income people (those living on below $4 per day) against specific perils in exchange for a regular premium payment proportionate to the likelihood and cost of the risks involved.
The premiums range from US$2 – US$10 per annum with a long value chain.
The current approach that underpins this type of product is labour intensive using manual processes, spreadsheets and legacy systems. How is it possible to effectively deliver this product using an alternative method and radically improve how the whole process works?
Combining our insurance expertise with blockchain specialism, we have already created an end-to-end process where the total processing costs across the whole value chain (from policyholder to reinsurer) could be as low as 5% of the premium paid. Blocksure OS will deliver all policy information, payment details/split and documents to all parties in real time meaning that the reinsurer will receive real time notification of all risks. This will also be completed with automation of regulatory compliance and business governance controls.
I have spent a large part of my career helping insurance businesses improve performance and have experienced a number of challenging situations where brokers, MGAs, insurers and claims TPAs have had major operational issues. During my time working with these businesses I would never have thought that a blockchain solution would be possible, especially with the issues surrounding processing, data quality and fragmented technology.
The benefits for the microinsurance project are clear but they do not end there. We have also been tasked with delivering a parametric solution for claims handling and payment. We estimate that the process will cost the whole value chain US$2 per claim.
Going back to the question – does the industry need blockchain?
It depends on whether or not this is an isolated example, or can it be replicated across other products? Again, the evidence is clear. This type of solution and the level of benefits can be replicated in any intermediated product line that has an element of volume processing:
- We built a millennial renters product where the total cost of making an amendment to a policy is £0.25 (US$0.30) across a broker based distribution channel
- We worked on a Group Life Scheme PoC for a major insurer. Our work identified that we could reduce the production costs for a SME Group Scheme from US$4,000 (£3,280) to US$1,000 (£820) with the automation of 30 manual processes
These benefits are only possible by combining the unique attributes of blockchain with contemporary technologies. There are many more examples and it is applicable to most intermediated product lines, including commercial and life & health. The level of benefits depends on the complexity of the product and volumes involved.
It’s not all about cost savings
Blockchain based systems allow insurance businesses to build new products that were historically difficult to construct due to the constraints of existing technology solutions.
The majority of insurance products are built around standard, annual policies and this needs to be questioned with the introduction of blockchain technology. Insurance products should be designed so that they meet changing customer needs in real time:
- A gig economy worker is only charged for insurance when he clocks on and off for work via his work platform. The work platform is integrated with an insurance application that notifies all parties in real time of the risk and payment detail.
- A policyholder changes the number of vehicles in its fleet, the policy should be updated in real time with the appropriate premium adjustments and document updates. This should also require minimal processing and costs.
Blockchain is not a magic wand
There is a warning that comes with blockchain – it is not the solution to all problems across the insurance industry. For example, why would a direct insurer use it? They certainly need to be wary of it as it allows agents/brokers to set up competitive product propositions that can be delivered as cheaply, if not cheaper, but without the customer service issues associated with call centre based direct businesses. This is especially true during the claims process when policyholders want to talk to someone during a stressful situation where local interactions can be very helpful.
It is not a wand but a major tool for the broker/agency channel to use when tackling competition from other channels. Another area where we have identified major benefits is with schemes/program businesses – this will be covered in a later post.
It presents a unique opportunity to develop holistic systems that can both replace some of the current complexity and provide a link with other existing infrastructures to significantly reduce friction across our industry.
We have spent much of the last five years learning about blockchain and how it can help our industry and we are creating a community-based approach aimed at helping people see what is possible.
Do you really need to know how blockchain works?
“What is blockchain?” and “how does it work?” are regular questions I get asked. Detailed technical answers are usually received with glazed looks or a complete switch off.
The best way to approach blockchain is to look at it like the internet. How many of us understand how the internet works or what technology underpins Amazon’s astounding success? Yet we still use it. Blockchain is a piece of technology that can deliver major benefits. The majority of users do not need to know how it works but rather understand the benefits that it can deliver.
Blocksure Discovery is a community-based knowledge and experience hub designed to educate, connect and inspire like-minded insurance professionals interested in using blockchain. The mission is to make blockchain accessible to everyone across the insurance industry by creating a learning environment where you can find out more and try out the technology.
It will be more than just the theory of what the technology can do for insurance. Whilst understanding the basic concepts is important (and we do that too), we want to go beyond this and showcase the business applications of blockchain in insurance – how it works, what it looks like, what it means for you and how you can get started with it.
The three core pillars of Blocksure Discovery are:
Learn – Connect – Create.
I want to promote the opportunity to learn about blockchain and connect like-minded people so they can create products centred around customer needs by embracing the benefits of blockchain technology.
We have used a community-based approach as we want users who have the same interests to be able to connect with each other, such as brokers and insurers in the same product lines for example, who will be able to connect and discuss potential collaborations.
Watch our short video below which explains more about Blocksure Discovery.
How will Blocksure Discovery help different audiences?
Blocksure Discovery has been designed to work at four different levels and provide content for each.
We want to help everyone in an insurance business understand the benefits at different levels e.g:
- How can I improve the key metrics of my business?
- How can a schemes/program solution allow my brokerage to improve its bottom line and customer delivery in a single implementation?
- What are the technology considerations that my IT departments need to look at?
Some of the change management aspects are different. Blockchain changes how you need to look at your organisation and we have lined up a number of external experts to provide specialist change management content.
Whilst I might be tired of the cynics questioning whether or not the industry needs blockchain, I am far from tired of the answer! The discussion has moved onto more interesting aspects of the technology, the challenges to apply blockchain to and the benefits it can deliver in each case. If that sounds like a conversation you would like to join, Blocksure Discovery is the right forum for you! See you there.