A reduction from 5 to 13 points in the non-life combined ratio for an economic value that exceeds $200 billion in terms of technical margin from the overall gross premiums. This is one of the appraisals made by Boston Consulting Group (BCG) in the survey “The First Blockchain Insurer” aimed primarily at quantifying what benefits the insurance industry could obtain if the blockchain were actually heavily applied.
According to BCG, a blockchain insurer can rely on more efficient settlement processes throughout its claims management with a significant reduction in the costs and time required to manage claims. In this industry, the essence of the blockchain application is to be found in the transformation of the insurance value chain, reducing or removing the number of transactions thanks to the Smart Contract approach. How? Let’s think about whether a person has taken out insurance to cover the risk of delay in a journey. With the blockchain there is no longer any need to produce documentation confirming the actual delay of the service or fill in fields on fields in an online damage assessment service. The certification of the delay comes automatically thanks to the reading of the data relating to the services actually performed for example by the airline and always automatically the procedure of compensation for the benefit of the insured is launched. Some companies already use the blockchain with their partners, but the real advantage will come when the entire ecosystem will use it, i.e. when companies and third parties entitled to retrieve and certify data can provide information necessary for this type of management. The other great advantage with the introduction of the blockchain in the insurance industry is the possibility to safely access and manage Data Analytics solutions with forecasting and predictive analysis. This approach allows on the one hand to reduce time and effort with a saving in terms of management of those involved. Other important benefits are also the reduction of errors and fraud. Ultimately, the risk profiles of people can be defined in far more detail.
Blockchain and cost reduction
BCG mentions three large areas of possible savings related to blockchain implementation:
– Distribution
– Risk Management
– Operations
First examples of “All blockchain insurer” make it possible to achieve significant cost reductions, in particular, in case of “reinsurance” services, the possibility of having data on a blockchain to be analyzed allows to have a better understanding of the risk concentration factors also linked to social, political, meteorological or environmental data context. For example, the fact that insured goods have to travel in highly unstable areas or with a frequency of weather-related incidents allows for automated risk trading between companies and at the same time allows for more accurate cost management. The survey points out that, for example, B3i consortium, gathering dozens of reinsurance companies and brokers on a blockchain platform, has the prospect of reducing the loss ration by 0.5% and the combined operating ratios by 4 to 5 percentage points.
The BCG survey then points out the seven key advantages of a blockchain-based choice:
– Tracking of goods with maximum transparency
– Ability to create reliable and unchangeable data records
– Possibility of managing privacy and confidentiality with cryptographic solutions enabling to define data access rules only for blockchain users
– Maximization of resilience, thanks to the nodes structure these solutions are still effective even in case of criticality on some nodes
– Ability to achieve new efficiencies, with reductions in data management costs
– Automation of transactions with a different governance for payments and contract management to reduce manual interventions
– Reduced transaction timeframes, transactions and data changes for all transaction segments
Blockchain, Internet of Things, data Analytics, Artificial intelligence
However, the advantages of the blockchain stem from the integration of different technologies which contribute to the innovation of the insurance sector, from the Internet of Things, advanced analytics and solutions combining Smart Contract and Artificial Intelligence. Respecting the basic principles of insurance, which arise primarily from the collection of information, its selection and retention. This model of “information protection” could be questioned by the blockchain that takes value creation to other dimensions, i.e. creating a deeper and more accurate knowledge that allows to better manage all the Risk Management and to carry out forms of prevention and prediction.
The advantages, as already mentioned, are tremendous. In particular, focusing on the automotive market, an insurance company choosing to become an “all blockchain” one, can aim to earn between 10 and 13 percentage points of operating combined ratio compared to a “conventional” situation. There are however risks and bottlenecks. The development of the blockchain in the insurance industry is still hampered by the need to increase the skills and general know-how of the same. There are also a number of strategic issues, such as governance on the one hand, and the lack of clear and recognised standards that require prudence in the choices made by operators, on the other. This caution, however, has to deal with a market made of insurtech startups competitors increasingly tough and above all natively prepared to handle these challenges, particularly from a technological point of view.
(originally published on Blockchain4Innovation)
All rights reserved
