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Time for Blockchain Experimentation is, 'Now'. That's the Bottom-line for Insurance Carriers

By Safwan Zaheer, Head of FinTech, KPMG US

Safwan Zaheer, Head of FinTech, KPMG US

Blockchain has brought an exciting dimension to the way it can transform Insurance. There are a plethora of use cases of the technology that’s built around data sharing, record keeping, decentralization, consensus-based authentication, and smart contract-based decisions and triggers. However, with so many different areas where Blockchain can be applied, with so many different options for Blockchain tools and technologies, insurance carriers will need to identify and focus on use cases that result in the most improvements to the business. KPMG suggests insurers pick a use case that provides at least 20 percent in business efficiency.

Although different insurance carriers are at different stages of experimenting with Blockchain, one prominent use case is around ‘fraud management’.

An estimated 5 percent to 10 percent of all insurance claims are fraudulent. According to the FBI, the total cost of insurance fraud (non-health insurance) is estimated to be more than $40Bn per year. That means insurance fraud costs the average US family between $400 and $700 per year in the form of increased premiums.

By moving insurance claims onto an immutable ledger, Blockchain can help eliminate common sources of fraud in the insurance industry. Storing claims information on a shared ledger can help insurers collaborate and identify suspicious behavior across the ecosystem, as all participants get a single view of the entire data chain. The technology’s permission approach to data access becomes key to the privacy of shared information. Less fraud in insurance translates directly to higher margins for insurance companies, which can lead to cheaper premiums for consumers.

The likely effects of Blockchain on Insurance will pan out over time, however, mobilizing efforts around doing some test and experimentation now will go a long way in helping insurance carriers gain valuable understanding of the technology and, hone on the right use case to commercialize, when the time is right.

In the short-term, Blockchain promises to bring many ‘operational improvements’ in the industry, such as increasing speed, efficiency, and reducing costs. And, in the mid-term, Blockchain can help protect and manage ‘data’ better. However, Blockchain is expected to bring true transformation to the insurance value chain, in the long-term. It is expected that the technology will be a catalyst enabling new business models, such as peer-to-peer (p2p), helps accurately price risk by utilizing new sources of data placed in the Blockchain ledger, and enabling new solutions that match carriers with customers in an autonomously, etc.

The bottom line for insurance carriers is the time for Blockchain experimentation is ‘now’. Insurance carriers can no longer take a wait-and-see approach. As is the case with new technologies, challenges do exist for Blockchain– including a lack of standards or a proven scalable system that uses it – but its transformative potential is enormous. Blockchain may not be driving competitive advantage today. But it will certainly underpin the sector’s growth in the future. Insurers who ignore this new technology will end up playing catch up with higher costs and risk erosion to their market shares.

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