BLOCKCHAIN: WHAT WE KNOW AND HOW WE CAN APPLY IT TO THE INSURANCE SECTOR
By Ruben Nova
There has been much talk in recent months about Fintech,
Insurtech, cryptocurrencies, Machine Learning, Artificial Intelligence and
Blockchain.
But what is known about Blockchain so far?
As part of my research, I have had the opportunity to
attend numerous conferences that have addressed this issue from different
perspectives: general, technological, legal, business… In all
of them I have met with different speakers and attendees, who are still
in an initiation and testing phase of what this
tool can become. It is the most disruptive technology for the insurance sector
within all the areas that Insurtech encompasses.
Blockchain is a distributed ledger, with
different characteristics, that act
under the same rules or protocols, which can give a glimpse of a profound change in many
economic sectors. Many experts predict that 20% of insurance
companies will apply, in one way or another, Blockchain in their companies
during the next 2-3 years.
Blockchain is a
database distributed by nodes of the chain, cryptographically protected,
related to each other, among the participants of the chain.
Firstly, it has the property of
immutability. This means that once
a transaction is recorded in a Blockchain, it cannot be deleted,
and being distributed, all participants in the network have the same exact
copy, can participate in the system and act as a validator. This means that, in the event of an attempt by a
the network reliability, auditability and traceability.
Blockchain arises from the creation of Bitcoin. The technology already
existed years ago, but it was not until Satoshi Nakamoto created this
cryptocurrency in 2009, when the potential of Blockchain began to be considered.
Satoshi (it is said to be a pseudonym that includes about 5 people), created
Bitcoin with the ideal of decentralizing banks and governments.
This means that anyone can be judge and
part of the process, allowing P2P transactions, and transforming centralized
schemes into a distributed network between parties that eliminates intermediaries.
In this way, the chain is endowed with blocks of efficiency, savings and
reliability, a fact that makes many call the blockchain “the
machine of truth”.
APPLICATION IN THE INSURANCE SECTOR
As a result of this technology, smart contracts have been developed, which involve the execution of a contract or
policy automatically, with the methodology if, then… This means that, if one of the
conditions stipulated in the policy or contract is met, it unlocks the insured
sum, given that the participants of the Blokchain network (whether public or
private), verify that the conditions have been met and validate the
transaction.
As an example, let’s imagine an agricultural insurance. The
farmer signs a smart contract with an insurance company in which, in the
event that a storm causes the loss of part of the crop or
all of it, the insurer mitigates the loss with the payment of the agreed
compensation. The particular conditions of the policy are defined
in a Blockchain and, when the event occurs, the insurer can verify through
meteorological information platforms or an oracle (tools
or third parties that verify that the stipulated conditions have been met),
in addition to taking photographs of the land using a Drone, to check the
status of the same.
With all this information, quickly and without the insured having
to make the claim, the contract is executed and the payment of the insured
sum is made. This, in addition to saving management costs, implies
customer satisfaction and loyalty, eliminates fraud attempts, and can
serve as a prevention tool.
Starting from the situation that we are still in a beta phase, insurance companies are investing in investigating possible use cases, and consortia such as B3i (formed by companies such as
Allianz, Munich Re, Zurich and Swiss Re among others) and the consortium formed in
Spain Alastria (formed by companies such as Mapfre, Reale, Banks such as La Caixa,
and other large national and international companies) are being formed.
With all this movement, initiatives such as
Fizzy (AXA), a flight delay and cancellation insurance (between Paris and
New York) in which the insured, in the event of a delay, has the
money before taking the plane; Maersk, a
maritime giant that uses Blockchain for traceability in the
maritime transport of goods and ensures the process; or Everledger, a
company that ensures the traceability and authenticity of diamonds through
Blockchain. Other initiatives are Lemonade, for home insurance, Pay as you
drive, which adjust your premium to the way you drive and insurance
per use.
A SMALL CONCLUSION
With this revolution in mind, I believe that Blockchain has great potential in our sector. Due to its intrinsic characteristics, large
companies are betting heavily to give a disruptive change to the current
insurance system. The entry of smart contracts represents a paradigm shift, given that until now an insurance company paid an amount
for a certain contingency, and with the new system they can help to avoid that
contingency and the consequent payment of compensation, thus strengthening its
preventive character.
It is true that we are still in the initiation phase and that we have
to continue investigating, adapting to the needs of users and
companies, and develop a regulation that allows the new era
of the Insurtech world to be possible.