How blockchain impacts the insurance industry – Part 1

The insurance industry has existed for thousands of years. The most fundamental concept of “insurance” is the risk of transfer. The Chinese and Babylonian businessmen have had the concept of risk transfer and dispersion more than 2,000 years ago. For example, Chinese businessmen are Before sailing in the poor mountains, know how to repackage the goods on multiple ships. Even if several ships are sunk or the goods are damaged by water inflow, the probability of loss will be less than the loss of the goods concentrated in a few ships. The insurance mechanism of the Babylonian merchants is recorded in the code of Hammurabi, which can be traced back to 1750 BC. According to the provisions of this code, if a businessman gets a loan for the delivery of goods, the merchant can pay more. A fee is paid to the borrower in exchange for a guarantee that the borrower agrees to cancel the purchase if the goods are stolen or lost. This is not the same as vehicle theft insurance or the house fire insurance that is common in modern society, but it is quite similar.

The insurance industry, which has been in existence for thousands of years, is struck by the blockchain, as many others have not yet discovered. In early 2018, CB Insight published a research report on the impact of the blockchain on the insurance industry – How Blockchain is Disrupting Insurance. In this study, CB Insight pointed out four areas of the insurance industry that may have changed dramatically, including (1) Fraud detection and risk prevention; (2) Product Loss Insurance (Property & Casualty ( P&C) insurance); (3) Health insurance; (4) Reinsurance. The insurance industry is a highly regulated industry, which is the case in every country in the world. Therefore, it is very challenging to have innovations in the insurance field. CB Insight also clearly acknowledges this. Now it is necessary to determine whether the blockchain is It may be too early to overcome the relevant laws and regulations, but the CB Insight research report is worth noting. The author divides the four aspects of CB Insight’s research report into two articles.

(1) Fraud detection and risk prevention

Traditional insurance claims are time-consuming, and claims documents are transferred between policyholders, insurance companies, and reinsurance companies. The procedures are slow and involve different processing units. Because of the different processing units, the information asymmetry makes it possible for people with a heart to use the information gap to scam the insurance company. It is estimated that the amount of insurance fraud in the United States alone is as high as $40 billion. This not only causes the financial burden of the insurance company, but the insurance company’s practice is to pass the cost of insurance fraud to the policyholders, which increases the average cost of insurance for American families by $400 to $700.

According to CB Insight’s research report, “blockchain technology can promote cooperation between insurance companies to combat fraud. With decentralized books, insurance companies can record transactions permanently and protect data through limited access control. Security. Storing insurance claims in decentralized books helps insurers work with their peers to point out suspected behavior throughout the system.”

The introduction of blockchain technology can bring at least three major benefits: “reduce double-booking, establish ownership of data to reduce counterfeiting, and reduce insurance costs.”

“For example, if a diamond trader forged a report of a diamond theft and applied for insurance claims. He then copied the diamond certificate and tried to sell the old diamond that was not stolen as a new diamond. Because the unique serial number of each diamond has been stored. On the Everledger blockchain, when the same serial number emerges, the insurance company will be notified and diamonds will be obtained from the diamond dealer.”

(2) Property & Casualty (P&C) insurance

According to CB Insight’s research report, “Product Insurance’s common insured items are houses and cars. The biggest difficulty is collecting the necessary information to evaluate and process claims. This is an error-prone program that contains a lot of data. Manual input and cooperation between different objects. “Why is it so complicated to process claims? Because the identification of “damage” is very subjective and involves many different objects – for example, in the case of car accident claims involving at least the policyholder, another car owner, the insurance company of the policyholder and the insurance company of another car owner – Information sharing. The World Economic Forum’s August 2016 report, The Future of Financial Infrastructure – An ambitious look at how blockchain can reshape financial services, provides a good guideline for how blockchain can facilitate information sharing in insurance claims.

CB Insight also pointed out: “Smart contracts on the blockchain can turn paper contracts into programs that help handle automatic claims and calculate the insurance liability of all involved. The general contract is paper, exists in two or more Between objects, executed according to law; a smart contract is a contract that exists between two or more objects on a blockchain and is executed according to the program .”

“Allianz Insurance recently closed a prototype of captive insurance based on Hector’s Fabric blockchain technology. Allianz’s blockchain links to Citi’s CitiConnect API for acceptance and payment contracts This is a system specifically designed for manager liability insurance and product insurance. This insurance prototype records the renewal of insurance contracts, the payment of premiums, claims made on the blockchain, etc., to simplify the procedures for transactions between various parties. Yann Krattiger pointed out that “automated programs replace thousands of emails and a large number of data archive transactions. “

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