Blockchain in Commercial Insurance: Managing Risk in a Digitally Transformed Business Landscape

Abstract

» Insurance is a fundamentally important institution for lowering uncertainty between two parties so that they can exchange value. As such, it is a suitable target for disruption by a technological means of managing risk and minimizing complexity.

» Most industries hesitate to blow up their own business models. Decentralized insurance (e.g., social insurance) would do just that—disintermediate many of the functions of the classic insurance company—and so the industry itself will not likely start there. Nor do we foresee blockchain disruption of traditional insurance products.

» The commercial insurance sector is ideal for blockchain disruption because it has evolved to underwrite risk in a decentralized way, so as to avoid moral hazard. Its key systems (e.g., claims processing and insurance fraud detection) are already distributed. There is no incumbent system of intermediaries to displace. In the insurance industry’s risk-averse culture, blockchain pioneers would be wise to avoid exotic niche products and focus on use cases that employ blockchain among permissioned partners to gain efficiencies in back-end business processes, such as those in business-to-business property and casualty insurance.

» There are blockchain use cases throughout the insurance process flow: in contracting (Maersk’s Insurwave), facility operations management (Willis Re’s shared network state), financial accounting (AIG and Standard Charter’s master policy pilot), claims agreement processing (Suncorp and ANZ bank’s shared network state), payments and treasury management (Allianz’s internal token pilot), and statutory/regulatory reporting (AAIS’ Open Insurance Data Link).

» More forward-looking initiatives such as Sweetbridge and Mattereum are insuring the risks inherent in using such blockchain technologies as digital wallets, tokenized assets, and smart contracts. These risk are not yet well understood.

As per Blockchain Research Institute policy, this paper is made available in the public domain six months after publication date

Keywords: Blockchain, Commercial Insurance, Distributed Autonomous Insurance (DAI), Digital Ledger Technology