In the insurance industry, the “killer app” for blockchain has little to do with Bitcoin or any currency substitute, according to a diverse group of Insurance company participants at the InsureTechTO conference recently held in Toronto by Insurance-Canada.ca. To prove their point, a select panel of representatives from Marsh Canada, AIG and The Cooperators unveiled three “killer apps” for blockchain, the distributed ledger technology that may be best-known as the architecture behind cryptocurrency Bitcoin.
The panel developed the apps at Cookhouse Labs, which bills itself as a creative space for “organizations and individuals wanting to solve insurance industry problems through open innovation and collaboration”. Cookhouse has facilities in Munich, Germany, and Toronto, Ontario, but it was at the Toronto facility where the group met to develop a comprehensive list of 30 applications from which they subsequently selected the top three. Cookhouse co-founder Sven Roehl noted that Cookhouse noted that “Toronto will be a blockchain hub.”
“Blockchain is what email was in 1995,” said Neil Mitchell, managing director of insurance firm Marsh Canada. And like email did for the emerging internet of the 1990’s, a killer app for blockchain “could totally transform how insurance is transacted.”
The group met for a four-week period at the collaboration space provided by Cookhouse Labs. It included a first week of education on Blockchain, followed by weekly workshops to identify customer and business problems that could be effectively addressed by blockchain. In the third week, the group developed a list of 30 “use cases”. In week four, perhaps fittingly for a workshop in blockchain, the group used a mathematical formula developed for them by which they selected the top three “killer apps”.
The first of the three top apps was automated flight insurance. This first selection was presented by Natalie Whaley, operations supervisor at insurance company AIG Canada, one of two AIG representatives in the group.
Automated flight insurance, Whaley noted, takes standard flight insurance and adds a blockchain twist. Currently, the customer must make a claim after verifying that the flight was indeed canceled. With blockchain, the contract would automatically be triggered when the flight was posted by the airline as canceled. The claim would be processed and paid to the recipient immediately. This, said Whaley, “would revolutionize how we (the insurance industry) deals with claims and payments and how we perceived by consumers.”
Whaley noted something similar had already been implemented in Europe by Axa, a French insurance firm, for flights that were delayed for more than two hours. The ability to deal with flight cancellation was only a matter of time.
The second app dealt with the idea of broker licensing. Dave Lund, also with AIG Canada, presented an idea for a “shared community approach” to listing and licensed brokers. The advantage of blockchain for this application, noted Lund, was that “it has one authoritative record available to all” and one where the data is immediately up to date and “100 per cent accurate.” There could be no misrepresentation, according to Lund. Blockchain allows for complete access by those who have to validate licensing while at the same time limiting what others could see, protecting the privacy of the information stored in the blockchain application.
The third application dealt with a more complex situation. Group benefit payments are often coordinated with multiple companies. These are not only difficult for the claimant but are also subject to error and fraud, according to presenter Binal Bhavsar, enterprise architect at The Co-operators, a Canadian insurance company.
The example presented looked at a situation where spouses had coverage under two plans. A claim for something as simple as a therapeutic massage would be paid partially by one insurer with the remainder claimable on the family coverage of the spouse. When this occurs, the claimant is required to submit the claim twice for the proper amounts. Fraud occurs when the same claim is submitted to both companies requesting full payment. With what Bhavasar referred to as a “smart contract,” companies could deal with this difficult situation and pay it based on the policy rules. Not only would this reduce the claimants need to file to two claims, but it would “reduce fraud by 60 per cent,” according to Bhavsar.
Bhavsar noted that this application could not be developed without the cooperation of different insurance companies as it required collaboration on the development of standards, such as the explanations of benefits. Development of those standards, as with the standards that made email possible in the 1990’s would have benefits for all insurers, reducing claims processing costs and fraud simultaneously.
Besides being enabled by blockchain, the three applications had several common threads. Each would increase efficiency of insurers and decrease costs. Each would vastly increase the user experience of the consumer, and it would also remove the intermediaries, in this case the insurance brokers.
“In a world of blockchain, the intermediary role goes away,” noted Marsh Canada’s Mitchell, adding that blockchain would push the cost of insurance downward in what he termed, “a race to the bottom.”
While Mitchell explained that the insurance brokers would need to focus on needed advisory and advocacy services, the open unanswered question is how they would be compensated in this new model.
According to panel members, the three “killer apps” show just how powerful the impact of blockchain will be, not as a replacement currency, but as an intelligent contract and secure enabled of transactions. That impact, according to our panel of experts will be transformative. As panelist Mitchell stated, “Blockchain could seriously disrupt the insurance industry.”