The use of blockchain to facilitate transactions in the insurance industry is expected to grow dramatically over the next few years. Companies that understand when, why, and how to apply blockchain effectively are likely to enjoy significant competitive advantages as the industry’s transformation accelerates.
Blockchain’s potentialAlthough industries of all types are adapting to revolutionary advances in digital technology, the effects of today’s digital transformation are particularly powerful in industries that are heavily data-dependent such as the insurance industry. New capabilities such as artificial intelligence, machine learning, and advanced data analytics are dramatically reshaping the way data-driven businesses operate.
In the midst of all these advances, blockchain is likely to be the underlying, foundational technology that facilitates the continued digital transformation of the insurance industry. To understand why this is so, it can be helpful to summarize in very general terms what a blockchain actually does.
Broadly speaking, a blockchain (also called a distributed ledger) is a type of shared database that creates a permanent record of transactions. The database is distributed across multiple participants in a network and is therefore not under the control of a single participant. Some of the earliest applications of blockchain involved the recording of cryptocurrency transactions on public blockchains, but many of today’s most promising business applications involve the use of private blockchains, which are open to only a limited number of participants.
While the data within a specific blockchain transaction or contract can remain confidential, the ledger entry that contains the encrypted information is transparent to all users in the network. All participants have the same version of the ledger, which is updated in real time with each new entry. Above all, once the blockchain entry is posted on the network it cannot be changed, so users can rely on the validity, authenticity, and immutability of all entries.
These features make blockchain particularly advantageous for handling financial transactions and various types of smart contracts, which require that a specific action must be taken before the next transaction can take place. For instance, blockchain can enable smart contracts that track and automate the various sequential steps in underwriting an insurance application or processing a claim.
Because of blockchain’s broad applicability to a variety of business lines and operational functions, the insurance industry’s use of blockchain is expected to grow exponentially over the next few years. The technology research company ReportLinker projects the global blockchain insurance market is likely to grow from an estimated $64.5 million in 2018 to a projected $1.4 billion by 2023 – a compound annual growth rate of nearly 85 percent.1
Blockchain’s applicabilityBlockchain technology can be applied in a wide variety of operational and functional areas across virtually all business lines, including property and casualty, life, accident and health, reinsurance, group benefits, and surety lines. It offers opportunities to streamline and automate operations in underwriting, claims processing, adjustments, and regulation, and can be particularly useful in reducing fraud risk.
In fact, blockchain already is being developed and deployed on a global scale. A leading United Kingdom provider has found early success in using blockchain technology to drive mobile transactions. A leading insurer in the Asia-Pacific region has used blockchain to cut its average claims processing time from more than a month to less than a week. And many leading U.S. insurers are developing blockchain-based smart contract systems for managing policies across a number of business lines.
But it is not only large global insurers that are coming to recognize blockchain’s wide applicability. In a recent Crowe webinar attended by executives from a broad range of insurance businesses, participants were asked their opinions about blockchain’s capabilities and the benefits companies can derive from it. As shown in the exhibit, more than half of the respondents (58.9 percent) said they believe early adopters of such technology will gain competitive advantages.