Among the various applications of blockchain registers, insurance is undoubtedly one of the most advanced sectors. Many use cases have already been deployed and are operational. Here is an overview of the sector’s thinking on the use of distributed registers.
Blockchain and insurance: how compatible?
Blockchain technologies have sometimes been considered a threat to the insurance sector, since they are born of an ambition to eliminate the intervention of trusted third parties. However, it is important to be clear about the roles of each in order to better understand what distributed ledgers can bring to the sector.
A risk of negative impact on brokers
A blockchain is nothing more than a distributed database designed to secure exchanges and simplify management processes. By streamlining processes and securing exchanges, blockchain databases make the intervention of intermediaries, in this case brokers, superfluous. The role of advisor would then be the only remaining added value of the broker’s profession, even though this role of advisor is widely criticised by policyholders. Beyond the activities of putting people in touch with each other, such as brokerage, other intermediary functions in the insurance sector could also be called into question: this is the case, in particular, of management delegates, who will see their usefulness diminish in the face of the fluidity of the processes.
The insurer, an immovable third party?
If insurers do not feel threatened by blockchain technologies, it is mainly because it is difficult to consider them as a third party that could easily be dispensed with. Being insured is now, in most situations, a legal obligation, and it seems logical that a specialised entity could carry the risk for the insured.
However, the emergence of P2P insurance in recent years is challenging the traditional format of insurance practices. Blockchains could facilitate the deployment of P2P insurance on a large scale and thus see the entry of new players with the possibility of positioning themselves on the market. Ultimately, this would be an evolution of the principle of mutuality, the foundation of insurance.
However, large-scale projects involving very large amounts will always make it preferable to have large insurers capable of carrying a risk of hundreds of millions of dollars.
Distributed registries such as blockchains therefore represent more of an opportunity than a threat to the major players in the insurance sector. Facilitating the management of contracts will require less manpower and should help insurers to position themselves on higher value-added activities. The acceleration of decision-making processes and the reduction of processing costs can represent real opportunities to offer new services to policyholders.
Blockchain and insurance: use cases
Several insurers are working on blockchain projects and various use cases have already been implemented. The main projects are based on smart contracts and concern various areas of insurance: the P2P insurance mentioned above, flight delays, but also life insurance or KYC insurance.
Transparent, tamper-proof and publicly accessible, dApps offer new horizons for moving towards a collaborative insurance model. Some players have already positioned themselves in this niche, such as Friendsurance. It works by transforming groups of policyholders into a community. For small claims, the claim is covered by the payment of premiums. In the event of a surplus, the common funds are redistributed in full transparency. Conversely, in the case of large claims, the insurer pays the surplus. Friendsurance is therefore the equivalent of a mutual insurance company that covers itself by reinsurance for major claims. This is an interesting business model for moving the insurance sector towards a more collaborative and decentralised model.
Flight delay insurance
The use of smart contracts is particularly relevant to the insurance industry. Axa was the first to release an insurance product based on a smart contract. This product, called Fizzy, automatically compensates the customer in case of flight delays so that they can systematically benefit from their delay insurance. In the vast majority of cases, insured passengers do not take advantage of this insurance, either because they do not have the time to make a claim or because they cannot easily justify the flight delay. Fizzy allows policyholders to be informed of the amount of their premium and their compensation in case of delay. The blockchain is fed by oracles to contain all the information about flight departure and arrival times. The smart contract then triggers an automatic refund for any delay of more than two hours.
A blockchain can also be used to facilitate compliance with a law. In order to meet the obligations of the Ekert law, which requires insurers to distribute the sums retained in unclaimed life insurance policies to the beneficiaries, insurers are now experimentally using a system of oracles to verify the death of policyholders at regular intervals. Each death gives rise to automatic compensation for the beneficiaries of the contract. The situation becomes more complex, however, when it is necessary to change the names of the beneficiaries, since the information written on a blockchain is in principle unchangeable.
Know Your Customer (KYC) insurance
Insurers have also tested a KYC process to facilitate the sharing of customer information between distributors, insurers and reinsurers. IBM and Crédit Mutuel Arkéa have set up a data ecosystem to promote better knowledge of each customer file in order to offer a better-quality service. The same register can thus form a real insurance institution to be shared with each customer concerned, in order to strengthen the trust between the two parties.
In order to comply with the new European data protection regulation, this project will have to be fully “RGPD Compliant”. Each KYC blockchain will have to ensure that data can be erased in order to apply the right to be forgotten, and rigorously manage the accessibility of files to ensure their confidentiality.
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