Will your next insurance administration system be on the Blockchain?

Will your next insurance administration system be on the Blockchain?
Policy, claims, and billing administration systems have not fundamentally changed since their inception. Yes, there have been technical improvements, but the basic model remains the same as originally designed – each insurer buys (or subscribes) to a version of code to use against their own database and (hopefully) integrate with external sources to service a client. This is about to change with the advent of Blockchain 2.0. With an appreciative nod to material developed by our parent company, Oliver Wyman, here is a brief summary of this technology (Celent subscribers will have access to a full report on this platform in the very near future):
Blockchain is built on a series of innovations in organizing and sharing data. The objective is to create a single version of the truth, used by all participants, which contains a much richer dataset than exists in any one system today. This, in turn, enables new industry processes to be developed based on the use of transparent real-time data, immediate settlement of transactions and the expansion of auto-executing “smart” contracts with business logic encoded into the ledger. The technology incorporates two facets, a blockchain (lower case) which is the process of adding blocks of cryptographically signed data to form perpetual and immutable records, and distributed ledgers – a database architecture where all participants in a system collaborate to reach a consensus on the correct state of a shared data resource. Applying business rules to this infrastructure, called smart contracts, drives transactions immediately. Real time data exchange, increased security, and more efficient settlement of transactions and processing are some of the benefit areas waiting to be realized. Before this though, the platform must solve hurdles including scalability issues, regulatory concerns, and common standards and governance.
To this last point, our brethren in the banking industry have joined the R3 consortium to begin to address the challenges. Founded in New York City in September last year by nine founding banks, it now has 42 members spread across multiple geographies. It is led by a startup organization and is in its very early stage — the technology team is being built and initial use cases have not been completed. But what of insurance? Celent is aware of insurers who are active in this space. Most are leveraging the investments made in an innovation infrastructure (Innovation Labs, Centers of Excellence, co-development partnerships, accelerators) to conduct limited experiments with Blockchain. However, these efforts are individual and not connected. Is there a similar group of 9 insurers that want to work together to explore the opportunities and coordinate on standards? Or is there a policy, claims, or billing technology provider who is going to fill this void? We expect movement in these areas in the first half of the year with some possible ways forward identified by year-end.
Mike Fitzgerald About Mike Fitzgerald

Mike Fitzgerald is a senior analyst with Celent's Insurance practice. His career includes leadership positions in property/casualty automation, operations management and insurance product development. Mike's research focuses on innovation, billing, business process and operations, social media, and distribution management.

Comments

  1. Very timely article Mike. ACORD has plans to fill the void!

    I did a session on the potential of the blockchain in insurance at the ACORD Implementation Forum in 2014. I had just come from a SWIFT SIBOS conference where it was the main topic of discussion for bankers. I thought in would take several years for the insurance community to get to the same point, but I am very pleased that I was wrong.

    As I write this I am in the ACORD London office. Blockchain is the main topic of discussion in the London Market and our next Innovation Fourm on Feb 23 will focus 100% on the topic. At the Forum we will be seeking insurers to collaborate on use case scenarios and will have plans to do the same in the US market.

    ACORD has all the standards necessary to put “smart” insurance contracts on the blockchain already in place. If anyone reading this is interested in getting involved please contact me at whartnett@acord.org

    Bill Hartnett
    Head of Innovation
    ACORD

  2. Yes we are building something out with a number of insurers in Europe as we speak . There will be some announcements soon…

Trackbacks

  1. […] Writing in the Celent Insurance blog, Mike Fitzgerald notes: “Celent is aware of insurers who are active in this space (Blockchain). …However, these efforts are individual and not connected.”   Fitzgerald posits that some form of a consortium could be forming in 2016. […]

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