Private Blockchains and Insurance:
How permissioned accessed to data will create a trustless marketplace.
The insurance industry had been slow to adopt progress and the emerging technology known as Blockchain is about to meet the resistance. I am not a developer and do not know how to write a smart contract. Nor have I ever mined a crypto currency. But I have been using computers for 30 years and have stayed current on all technology as it has transformed the world around us. I brought this expertise to the insurance industry when I first got licensed in 2000 as a property and casualty broker.
Watching this industry go through the digital transformation has been painful as legacy and innovation were always at odds. Emerging technology and specifically Blockchain has the ability to create this frictionless transition and solve many of the problems where serious resources are being spent. The sooner we change the mindset of the participants, the sooner we can rebuild an outdated distribution system that is ready for the future economy of demand and supply. Let’s begin this journey with a quick review of what Blockchain is and then we will dive into the revolutionary possibilities.
I spent the week with Derek Lovrenich, the founder of insurEco System, a blockchain enabled end-to-end insurance distribution platform. I wanted to learn from an expert and blockchain developer to become what I call, an “apprentice blocksmith”. Getting this perspective was important to me as previously mentioned I am an insurance expert not a programmer.
I frequently heard people ask Derek…What is blockchain? His response was “Blockchain is simply a way to store data. It is not the most efficient way but it is the most secure way ever created by mankind”. He explained further “Distributed and permissioned ledgers solve many of the problems presented to developers”. We’ll get into those solutions a bit later. What I have learned is when you are the resident blockchain expert in a crowded room you become the resident street magician and a living search engine of blockchain knowledge. I would hear people shout out “How does blockchain protect private data since it is a public ledger?”
This is where the learning for me began.
Derek responded quickly “There are several blockchains and there are different types of blockchains. Unless you have been in a cave for the past year then you have heard of Bitcoin. This is a public blockchain which is a ledger that has been distributed worldwide through a series of computers also known as nodes. The miners are simply the computers that verify the transactions on this ledger and are awarded a bitcoin for lending this blockchain their computer” I realized this response was a very simple response to a complicated question but nonetheless Derek continued “There are also private blockchains which is what we have built at insurEco. This blockchain is distributed within a private network of insurance entities consisting of 60+ nodes where the only miners are the actual participants who have contributed the data and are required to share it for business transactions”.
The concept of private blockchains is foundational to understanding the application of this technology to insurance, which is highly regulated due to the sensitivity of the data that is collected and distributed.
The possibilities of blockchain transforming insurance are being discussed regularly in the insurtech space.
How could a private blockchain be used in insurance and more specifically how is it any different than current methods of storing and sharing data?
I was determined to get this question answered and who better to ask then a Master Blocksmith! So when we were out of the public space I was able to have some one on one time with Derek and satisfy my curiosity. I wanted to know why he thought blockchain was so awesome and his response took me into the world he lives on which I have to admit was more exciting than expected. “The most profitable companies in the history of mankind stockpile data” I knew this to be true considering recent events and earning reports from companies like Google and Facebook. “Your data is valuable and you should own it”
Hearing this type of talk seemed like blasphemy from a developer who makes money on storing and delivering data.
He continued “Insurance is more expensive due to outdated data storage methods and the consumer is the one paying the price with a secret data tax” Since it is Tax season in the U.S. I asked him who are the tax collectors? “Data Thugs” he responded. “They are selling your data to insurance professionals in the form of lead generation or they are just repackaging a 7 million column spreadsheet of free public information to willing buyers at the expense of the end user” Knowing the answer I queried who is doing this? “Everyone” he quickly replied.
“The entire industry is turning a blind eye to the way data is being stored and shared” he continued “Does an insured know that an insurance agent is sending a pdf with their personal information through email to 100 different people some of the recipients of this sensitive data even have an aol.com email” he went on further “What about the insurance company that is sending this information overseas to some tech company who is running analytics against it to predict losses and profit” He seemed to get aggravated and almost angry when I pressed the matter “This is my data I am a policy holder. Policy holders should own and control their data” he said passionately.
Seeing the problem from his point of view created a contagious enthusiasm in me for change. Millennials also known digital natives have recently become the largest demographic in the workforce and gig economy employment is expected to exceed 40% in 2020 according to a recent survey done by Cake & Arrow (). Derek spoke specifically to this shift “They want a new experience” he said “They want to buy insurance from a phone not from an insurance agent and if the phone doesn’t tell them to buy it they won’t” I personally have experienced this when talking with Uber drivers and other freelancers. They really don’t understand their insurance exposure as self-employed professionals. The digital native has no problem sharing their information if it is a better customer experience and if they are participating in the process and not just being sold something there will be a better customer engagement. Current events have brought the problem of sharing personal information to the forefront of customer awareness.
The case for an insurance blockchain and more specifically a private policy blockchain was beginning to materialize during this hangout. “If you monetize data you are socially responsible” Derek said “Don’t be a Zucker” he quipped. “Everyone want’s to know what is happening with their data, Hell an election was won because public data was used and this is pissing everyone off”. This was the turning point in our discussion.
Being an insurance professional, I know how much information insurance brokers, carriers, underwriters, actuaries, etc. have. “It’s about to drop” he said with a smile referring to GDPR and The Right to Be Forgotten. This forced regulation in the EU was only a month away and for the average insurance agent they had no idea of it’s implications. Comparing this data currency to a credit report he compared “It took an act of congress to create the Fair Credit Act which gave the consumer permission to know how their data was being used to charge interest rates and I expect the same regulation to hit the insurance industry very soon” I joked with that most people don’t grow up wanting to be insurance agents and most people don’t wake up wanting to buy insurance. “The black box of insurance needs transparency and that’s exactly what blockchain does” how so I asked “Not only is there an insane cyber and privacy liability exposure in the way insurance is currently bought and sold but with new technology like machine learning and artificial intelligence…this is a whole new frontier of risk management with a whole new set of problems that haven’t even been discovered”. Like every good story I was hoping for a good ending. I personally get satisfaction in solving problems and I got the sense Derek shared the same inspiration.
So how are you using blockchain to solve these problems I asked. “ I am helping all of us take our data back” He began to show me an application he created called insureBio. He began to describe what the application does “This lets you create a biography to store your insurance data” I asked him where is the data stored he said “PolicyBlockchain which is our private blockchain”. He continued “This will eliminate the sale by connecting the insured directly to a trusted agent by granting permission to your data through smart contracts” I knew quickly that this is a complete change of mindset from the customer and challenged him on this point, his response “Who doesn’t want to save money, time, control their data and get rewarded?”
That is a hard argument to disagree with as I conceded “With blockchain we, the insureds determine who can see what and how long they have access to it with permissioned smart contracts” I have bought and sold hundred thousands of policies in my career and could see the advantages of this tool and blockchain technology. “By keeping the data in one ecosystem insureBio uses the PolicyBlockchain give permissioned access to my insurance biography and I will always know who is using it and what they are using it for.” But what about the insurance agent I asked? “They will be able to spend time knowing their customers and selling coverage not price” he continued “by removing the data entry and market intelligence from the sales process my agent can focus on what I need”.
The implications were amazing and the future seemed bright for insurance with innovators like Derek leading the charge. I asked him some final thoughts and he left me with this “Blockchain is not only a technology it is also a philosophy. We are trying to achieve what we in the industry call the Warnecke effect. This occurs when your corporate fabric is so transparent and looks so good that you see people coming and listening and engaging and they want to put that same fabric out”
Changing the insured mindset is only the beginning of the digital insurance revolution, once we have this data stored properly, on a blockchain using permissioned ledger the customers will be able to participate in the future of risk management.