Insurance Transformation: Blockchain’s Impact on the Industry

By Mike High, Joe Kowalczyk, CPA, and David Uhryniak
Insurance Transformation: Blockchain’s Impact on the Industry
Like most of the business world, the insurance industry is undergoing a fundamental transformation as digital technology facilitates new methods of interaction. One of the most significant innovations enabling this digital transformation is the use of blockchain, or distributed ledger, technology.

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 potential

Although 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 applicability

Blockchain 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.
exhibit 1
Industry and professional groups are responding to the trend as well. Two industry consortiums have been formed recently to assist in the adoption of blockchain and to help develop additional products and service applications. The Blockchain Insurance Industry Initiative (B3i) was formed in late 2016 as a collaboration of insurers and reinsurers to explore potential blockchain applications. The following year the consortium released a prototype of its first product, a property catastrophe excess of loss (XoL) reinsurance contract.

In 2017, The Institutes, an education provider for the risk management and property-casualty industries, announced the formation of the RiskBlock Alliance, a consortium of more than 30 organizations representing various segments of those industries. The consortium’s mission is to advance development of industry-specific blockchain use cases covering areas such as proof of insurance, subrogation, data sharing and risk registries, and parametric insurance.

Making the business case for blockchain

As the number of new blockchain applications continues to grow, the challenge for many companies will be to prioritize their various opportunities to use the technology and decide which of the various use cases are likely to offer the greatest potential return. In performing this evaluation, companies should bear in mind the following characteristics about blockchain:
  • The most successful applications are those in which the organization’s product or service involves information that is shared among multiple users, particularly if this information sharing currently requires manually intensive processes. The ability to automate and accelerate such processes through the use of blockchain can deliver significant benefits in a very short time.
  • Blockchain also is particularly advantageous when the business transactions in question involve limited trust among participants, a description that is particularly fitting for many insurance transactions.
  • Finally, blockchain offers additional important advantages when it is necessary for the product or service to have documentation of provenance or an auditable history – two conditions that obviously apply to many insurance-related transactions.
With those characteristics in mind, a number of potential use cases in the insurance industry are possible. Examples include:
  • Claims. The conventional claim-handling model involves numerous manual steps among multiple parties. The initial notification, document collection and verification, review of contracts, and negotiation of a settlement typically take weeks at a minimum. Using blockchain to securely automate these processes, a number of leading companies have already demonstrated the ability to trim this processing time down to a few days.
  • Subrogation. Like the claims process, subrogation also involves multiple parties, limited trust among participants, and numerous manually intensive processes. Subrogation was one of the earliest and most obvious success stories that illustrated the applicability of blockchain in insurance transactions. Because blockchain transactions are transparent and immutable, they can engender a much higher degree of trust among participants, which can significantly accelerate the entire process.
  • Reinsurance. Applying blockchain to the reinsurance market offers multiple benefits, including the opportunity to create a liquid secondary market for risk. Because risks can be validated promptly, contracts can be established and executed quickly and the pools of risk can be securitized.

These are by no means the only examples of blockchain’s potential applicability in the insurance industry. Both industry consortiums and individual companies continue to develop a broad range of blockchain-based products.

Beyond specific applications, blockchain also is expected to have multiple points of broader impact and accelerate the industry’s adoption of other forms of digital technology. At a higher level, it also has the potential to support the creation of new business models, increase overall industry profitability, and encourage new entrants into the market by creating new collaborative opportunities.

As the use of blockchain continues to expand, companies looking to maintain a competitive advantage almost certainly will find it advantageous to collaborate with industry groups and consulting organizations to develop a deeper understanding of its features, capabilities, and applicability to their business.


1  “Blockchain in Insurance Market by Provider, Application, Organization Size and Region – Global Forecast to 2023,” ReportLinker, July 2018,

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Joseph W. Kowalczyk
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