Smart Contracts and Blockchain: the next chapter of Insurance Innovation:

Smart Contracts and Blockchain are considered the next chapter of Insurance innovation, taking the Insurance industry and it’s pain points to next levels: improving speed, clarity and customer service while reducing costs.  The insurance industry is taking both coordinated and fragmented steps toward implementing these technologies.

Innovation is coming towards the industry and incumbents should prepare and embrace these new technologies.

According to Wikipedia, a smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible.  Sounds perfect for Insurance – might be the best industry to implement.

In regards to Blockchain, we have a few articles about this topic, plus video below.   Important to note, Blockchain is the technology behind cryptocurrencies like Bitcoin (The technology not cryptocurrencies themselves is the innovation in focus).  This technology will prove to be very important in the next 5 years, especially private Blockchains.

See also…Must read books to understand Blockchain impact on Insurance

Potential uses of Blockchain and smart contracts include distribution, claims processing and in the policy life cycle.  These are regular pain points for customers and have high costs associated with each function.

The predictions are that the Blockchain technology could make speed of payments quicker and more efficient, improve risk management, grow insurer top line, help with binary types of insurance coverage, improve data quality, improve customer experience, and reduce costs in the system (lower costs to consumers).

The technology will allow for faster on-boarding and risk verification, faster quoting and binding, quicker settlement of claims.   Sounds good for customers!

Other ways of cost savings include: lower personnel costs, minimize losses resulting from fraud, & savings from underwriting leakage. Sounds good for insurers and reinsurers!

The customer is expected to enjoy a more transparent calculation of premiums and loss, friction-less claims evaluation, automated receipt of claims.   Sounds good for customers!  Regulators should also embrace this technology as it may make things easier for regulators as well.

Is it bad for brokers and agents?  Is it possible intermediaries are eliminated by this technology?   Possibly, but read more about miners in private blockchains and those who ensure the data is accurate.    This pivot will be essential over time.

How about insurance attorneys?  Defense costs or first party adjusters and attorney costs could be removed from the system…sounds like decent system savings.

See also…How Insurance could become the Innovation industry

The insurance industry although a few years behind on technology advancements in this space, has a great opportunity to be a true leader in innovation.  Smart companies will be making changes and continuous investments in this technology for the future (if you haven’t already… time to start).  The expense ratio of risk bearers and everyone in the value chain is under pressure, this is one way to alleviate.  Senior managers should look to young talent in their organizations to learn, develop, and position firms to be ready for this technology.

Investors must demand it!  Single digit returns don’t make sense long term.

The future of reinsurers and insurers is changing everyday, wouldn’t be surprised if we see changes in the structure of these firms, capital sources, types of competitors in this industry, and characteristics of employees as this technology advances.

Time for me to go back and learn coding or how to build algorithms to prepare, plus source capital for risk bearing.

Comment below with thoughts or questions. 

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Arnold Smith

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