The Really Hard Market is coming to insurance
A case for immediate use of an Insurance Policy Blockchain
Blockchain has become the newest buzzword that will most likely have the biggest and immediate impact on our society. We are increasingly becoming more interconnected thanks to the internet and the amazing speeds in which data is transferred. Now that we as consumers have on demand instant gratification, we have come to prize the two things everyone wants from us…our time and our data! The information that we freely give to social media and the vendors of goods and services we need or desire is the new currency. One of the industries that relays on your data is the insurance industry. They are about to go through a forced transformation which I for one have been warning all who would bother listening for a long time! Like Noah who built an Ark and warned others of impending doom I would like to introduce you to the Policy blockchain, the Ark for the insurance industry.
To understand the problem, we need a small history lesson on insurance. Our modern insurance system is based on merchants and noblemen gambling on whether or not their goods would make it to the new world. Eventually there were enough losses and patterns aka data for them to become expert gamblers, hence the birth of the insurance salesman. Risk transfer is what insurance is at its core. To properly determine this risk there has to be enough data over a period of time for these odds to be set. Instead of odds I’ll use the word rates since that is the friendly way to remind you that you aren’t gambling when you purchase insurance. So, what did insurance become?
The current insurance marketplace is a cesspool of bad data. Think about how insurance is purchased. Consumer gives trusted insurance salesperson information to obtain protection. Risk is transferred to an insurance company on the basis of this information in the form of a payment called premium. In order for insurance company to properly assess the risk they rely on the accuracy of the information provided to them by the licensed salesperson authorized to transact on behalf of the consumer. In good faith the consumer trusts that the agent or broker they have given their personal information to will not corrupt it. This is also where I bring up the most important responsibility of any insurance entity in the supply chain known as fiduciary responsibility, which is putting the consumers interest before their own. Not only is the insurance salesperson supposed to provide uncorrupted information to the insurance company, they are also required to provide them the proper coverage. So here is where the data may become corrupted, either the consumer provides bad information for the purpose of deceiving the insurance company to present less risk to lower their premium or the insurance salesperson corrupts the data to deceive either the insurer or the consumer for the same purpose. Sometimes this is accidental but more often it is done with knowledge of one of the parties. This creates another process known as an inspection which is performed by the insurance company to verify the accuracy of the data that was provided to them. Once the policy has completed its term another process happens called an audit which verifies the findings of the initial data, the inspection data and the actual data. All of this data review is built into the cost of the insurance which is ultimately passed off to the consumer. Those that are hurt the most are the consumer and the insurance salesperson that provides accurate information. They suffer and bear the burden of increased premiums. Think of it like grocery prices going up because of shoplifting or employee dishonesty. So how would an insurance policy blockchain help solve this problem?
Immutability of data on a distributed ledger creates trust with all parties involved. Consumers will be able to create an insurance biography which is verified by multiple sources aggregated on a blockchain. The sensitive information of the consumer is stored on a private blockchain which the consumer allows the insurance salesperson to access on their behalf. This data is verified against the public blockchain data and presented to the insurance company without corruption by a third party. Should there be any changes there is an ongoing ledger to the consumer identity which will always be verified by anyone who contribute accurate information which is undisputed by all parties involved. Insurance company releases terms via a smart contract which is facilitated by the insurance salesperson. All terms and conditions are reviewed and the insurance salesperson is the third party that validates this transaction. Upon execution of this smart contract the premium is paid and the accounting premium blockchain divvies the funds to the appropriate parties. All post execution contract changes are recorded and accessible to all parties with proper authority. This policy blockchain can be used for all of types of insurance policies including the claim process which is the purpose of purchasing insurance. The immutable accurate data that was used to issue the insurance policy will give trustworthy responses and payouts in the event of a claim. This will reduce legal expenses as there will be no doubt on the accuracy of the data nor the terms of the insurance contracts. Larger claims that involve total losses or bodily injury leading to medical care will be added to the blockchain which requires all parties to put all relevant data in a decentralized database which is constantly writing the consumers insurance biography. The efficiency will translate reduced premium and quicker claim resolutions. So, what happens next?
The friction will come from those that are currently capitalizing on inefficient process or those that live in the dark of purposeful data manipulation. The other parties that will resist are those that currently control the consumers data and by regulation and bureaucracy. The final party and the biggest blocker of blockchain implementation are those that resist change because they do not feel the system is broken, primarily because they are the biggest beneficiaries of the current insurance supply chain. Fortunately, consumers are already on the blockchain boat and enjoying the benefits of transparency and trust. Will the insurance dinosaurs watch the shiny comet wipe them out?
Phil Duncan @insurecloud Insurance Policy BlockChain