Private Blockchains Can Help Insurance
Private blockchains: How it can help insurance industry avoid being branded as ‘a trustless marketplace.’
Blockchain is being heralded as the most significant technical advancement for the insurance industry since the internet. It has the possibility of creating magic like never before by reinventing customer experience, removing process inefficiencies, preventing fraud and reducing the overall cost of doing business. Importantly, it can help the insurance industry create an image of one that cares about its customers. By being sensitive to the privacy of its customer’s data, and making sure it is not used for a wrongful purpose. Simply put, Private blockchains offers a permission-based method to store and share customer data, thus reversing the trend of growing customer trust deficit.
Let’s begin this journey by highlighting the disruption element of Blockchain; then we will dive into its possibilities. Let me also share my experiences and learnings while interacting with Derek Lovrenich, founder of InsurEco System, a blockchain-enabled, end-to-end insurance distribution platform. On the sidelines of OnRamp Insurance Conference for innovation, I, as an ‘apprentice blocksmith’ got educated on the revolutionary possibilities of Blockchain, especially in the area of data security.
Blockchain for a frictionless insurance marketplace: An idea about to explode
Insurance has been around for centuries. While technology has permanently changed the way insurance business is conducted, the multi-trillion-dollar global insurance industry in many ways is still stuck in the past. The inherent complexity of the value chain – ranging across consumers, brokers, insurers, and reinsurers – made sure that a complete complexion change would always be difficult to achieve. Each step in this collaborative process represents a potential point of failure in the overall system, where information can be lost, policies misinterpreted, and settlement times lengthened. Blockchain attempts to break this complexity by enabling a seamless transaction across the insurance ecosystem.
When a digital transaction is carried out, it is grouped together in a cryptographically protected block with other transactions that have occurred and sent out to an entire network. Based on their role, members of the network can verify the transaction. The validated block of transactions is then time-stamped and added to the chain in linear, chronological order – that is indisputable. Since the contract is now digitally enabled, it can enable efficiency in the insurance value chain wherever time, effort or money is spent to confirm information before processing transactions.
Insurance Industry infested with extreme privacy invasion: RIP ‘Customer experience’
There is little doubt that Data is the new gold. Companies like Google and Facebook have generated huge shareholder value by thriving on data. But it’s this very lure for gold that has pushed insurance industry to become one of the biggest misusers of customer data. It’s ironical that an industry that swears to ‘protect’ its customer has turned into one that is invading customer privacy. Data thugs are selling customer data to insurance professionals in the form of lead generation. They are repackaging a 7 million spreadsheet of free public information to willing buyers at the expense of the end user. As Derek puts it, “The entire industry is turning a blind eye to the way data is being stored and shared. Does an insured know that an insurance agent is sending a pdf with their personal information through email to 100 different people? Let’s not forget about the insurance company who is sending information overseas to run analytics to predict losses and profit”.
This blatant exploitation of customer data should be stopped. The insurance industry needs to realize that Policyholders should own and control their data before it widens the chasm of customer mistrust to the point of no return.
Regulations forming the Perfect storm
Regulations like European Union’s GDPR (General Data Protection Regulation) will help create an environment that will help stem this serious breach of customer data. It took an act of Congress (literally) to create the Fair Credit Act, which gave the consumer permission to know how their data was being used to charge interest rates. These regulations will help raise awareness, bring focus to data privacy and dramatically change how customer data will be processed and consumed. Insurers and Agents will no longer be able to rely on opt-out processes or implicit consent. Under the eyes of the law, inaction on the part of a user does not assume consent to their data being captured. Change is imminent and enforcement of these regulations will be the tipping point.
But, how do we go about creating a foolproof mechanism to protect customer data?
Reversing the arrow using private blockchains
The Insurance industry needs to shed the ‘black box of customer data’ it has created, and adopt an environment of transparency and responsibility. Blockchain helps achieve exactly that. It offers the promise of increased security and resilience based on the use of distributed, immutable records. It can either be open to anyone (such as Bitcoin) or private (limited to a specific set of participants). With a private blockchain, the organization that sets up the blockchain is the data controller and is responsible for compliance. The insurance industry can protect the interests of its customers using Private blockchain technology. Explains Derek “With blockchain, we, the Insureds, determine who can see what, and how long they have access to it with permission-based smart contracts. One of our application, insureBio, lets you create a biography, which is then stored in a Private Blockchain, called Policy Blockchain. Our system connects the insured directly to a trusted agent by granting permission to insured’s data through smart contracts. By keeping the data in one ecosystem, insureBio uses the PolicyBlockchain to give access to my insurance biography. I always know who is using it, and what they are using it for”.
The implications are amazing. It instills an environment of confidence and trust between the insured and agent. Customers are more forthcoming in sharing its data with its agents, thereby helping the agent asses and provide products and services tailored to the customer. By eliminating the need for data entry, the agent can focus on reaching out to a higher number of customers, gain a better understanding of their needs to provide value-added services. The future of risk management is bright.
Author : Philip Duncan