Blockchain technology is in the news a lot recently and it's beginning to be implemented in the risk management and insurance industry. At its core, blockchain technology (or the broader Distributed Ledger Technology/DLT) is network-driven. While it provides a means to work on universal problems that plague the industry and add costs, it also requires a nonpartisan arbiter to bring the industry's competitors together to test, learn about, and implement it in order to tackle shared business processes and provide a universally better customer experience.
The Blockchain Network: RiskStream
The Institutes RiskStream Collaborative emerged from The Institutes, a not-for-profit entity best known for its professional development offerings, which was formed over 100 years ago. The Institutes educate more than 100,000 learners annually on risk management and insurance topics. Its Board of Directors include chief executive officers who represent a majority of domestic property-casualty (P&C) insurance premium volume and whose organizations have a sizable international presence.
If a private permissioned blockchain requires a network, The Institutes already have an established network within the Property & Casualty sectors and reinsurance sectors. To establish that same arrangement in the Life & Annuities space, the RiskStream Collaborative teamed up with LIMRA, a research and professional development trade association for the financial services industry. As such, the RiskStream Collaborative has reach across a wide array of insurance and risk management.
The RiskStream Collaborative is a separate not-for-profit that has been working on blockchain and DLT applications for the last few years. Today, it operates as a consortium that uses its 30+ network of member companies to develop industry-specific DLT applications for varied use cases. RiskStream Collaborative members (carriers, distributors/brokers, and reinsurers) lead all areas of the consortium's governance and activity. For example, members and leadership work to prioritize use cases and launch working groups. These groups, in turn, design use cases and then work with staff and solution providers to build out the associated applications.
While all of RiskStream Collaborative's efforts center around members, the consortium has started creating a larger ecosystem (see Figure 1). Its goal is to position providers; not-for-profits; collaborators; and regulators and governments, or civics, to help consortium members devise solutions to shared business processes within the risk management and insurance space.
Figure 1:
The Blockchain Applications
Blockchain is poised to have widespread ramifications across the value chain of the P&C sector (both personal lines Figure 2 and commercial lines Figure 3), the Life & Annuities sector (Figure 4) and the Reinsurance sector (Figure 5), increasing market reach, removing redundancy, and cutting costs.
Figure 2:
Figure 3:
Figure 4:
Figure 5:
The industry could change on a number of exciting fronts as a result:
Insurance products, pricing, and distribution may be wildly altered as smart contracts spawn new products, like parametric insurance and insurance implanted in transactional purchases, and realize efficiencies in the insurance process, like reducing redundancy in 1035 exchanges in L&A or streamlining the reinsurance placement process, thereby improving efficiency and allowing for broader reach.
Underwriting and risk management may see data-sharing capabilities and risk registries emerge through blockchain-enabled provenance features and peer-to-peer insurance models, as well as shared industry ledgers. Today, underwriting involves significant wait time depending upon the coverage selected. Blockchain makes data accessible via permissioned data sharing so other organizations can securely access the information. Creating the correct incentives for companies to share is critical—and possible through the technology. Also possible is a single source of truth once a shared system of record is established. This increased transparency will accelerate the underwriting process and could be leveraged for risk management purposes.
Policyholder acquisition and servicing may become more efficient because new information will increasingly be confirmed at the origin. In Life & Annuities (L&A), for example, policy issuance requires the delivery of policy materials and disclosures—and is currently conducted in an inefficient, outdated manner. A blockchain-based solution can simplify, streamline, and enable multiparty sharing of documents across the value chain, allowing companies to share documents and data securely and selectively. Paper reconciliation would become unnecessary because all parties would be linked on the platform, and updates would be instantaneous.
Blockchain can streamline the Claims Process by optimizing the flow of data, meeting state regulatory requirements, detecting and preventing fraudulent claims, and providing proof that proceeds have reached the intended recipients.
This would be a welcome change to the current claims experience, which is overly complex. It relies on a paper process, does not meet expectations for consumers, and is costly and inefficient.
Financial, payment, and accounting processes in insurance could also improve. A distributed ledger like blockchain could allow for lower-cost international payments, net settlement capabilities in subrogation, improvements to the commission process within L&A, and even new forms of raising capital.
Insurance regulation and compliance could be transformed. With blockchain, its possible regulators could monitor certain permissioned insurance information in real-time and help with verification of policy information or agent education, certification, and licensing across states.
This multitude of possibilities provides an undeniably exciting path forward. Consortia, like The Institutes RiskStream Collaborative, have set the rails for applications to be built upon. While the true breadth and depth of the blockchain's influence and effects are impossible to know with certainty, the blockchain will undoubtedly be an important part of the insurance industry's highly dynamic environment.
Author: Patrick Schmid, PhD - Vice President, RiskStream Collaborative