Blockchain and Building Business Resilience

In this series of blogs on blockchain I have assessed the potential applications for the technology. The resilience aspect of Blockchain is very interesting because transactional data is now backed up potentially hundreds or even thousands of times at different locations not only in London but Singapore, India, the US or where other people are participating in the blockchain in that market.

It means that the concept of the London market has the potential to broaden and grow, which is an opportunity but also a concern for London. There will be opportunity for the local insurers in territories outside London, however, that are able to take advantage and be members of the market and participate in the blockchain.

“One of the other areas that is going to increase efficiency and provision of service are smart contracts,” says Gary Nuttall at the 2016 ACORD Forum. “In terms of allowing you to transfer value, smart contracts means that you have programmable code in a blockchain that says under a certain circumstance do something. In old programming terms terms an “if then else” procedure. And isn’t that an insurance policy when you break it out “In the event of this happening we will pay this”. If you can programmatically transfer that then it fits really well with smart contracts.”

What is the difference between a smart contract and a normal contract? Or a policy or a smart policy? Flight cancellation is the example everyone uses. The definition of a smart policy or smart contract is where clear terms can be defined and then monitored from third party sources and there are other examples.

Blockchain Applications

Take the commonly-used flight insurance example. You as a traveller take out travel insurance. When you take it out the policy says we will pay you if your flight is delayed by more than 60 minutes - or whatever the term is that you accepted. You pay your premium and your flight is delayed by two hours. What do you do? You document the fact, take a photo of the flight board with two hours delay on it, contact your insurance company by phone or internet and fill out their claim form. Sometime later the insurer phones you up to clarify some details or they will come back and just pay. But there is a period of time lag and typically, in my experience, it is not less than a month - even when things run smoothly.

With a smart contract, however, the idea is that the claims event is rendered undisputable by a trusted third party. If you are the insurance company, I am the claimant, the airline has publically available services reporting that flight has been delayed, which alerts the insurance company that does a quick search on which travellers are inconvenienced and pay them immediately. The idea being there that the payments are triggered by the undeniable data from external sources.

Huge Motor Claims Efficiencies

You can see that some motor claims might be triggered in a similar way to the travel insurance example. We are already witnessing huge efficiencies in motor claims processes. Hark back to the 1990s, if you had an accident you would take the vehicle to a garage, the loss adjuster had a look, there was much toing and froing and as a policyholder it was very inefficient. In 2016 it is more streamlined, you take the vehicle to one of the insurer’s authorised garages for repairs and when that garage says it is going to cost £2K that is approved tacitly by the insurers going forward.

Rather than tacit approval there will be additional smart processes added to stop any attempt at potential fraud. It might be that the claimant notifies her insurer of the accident and where it is, which is looked at by police records and CCTV to validate the accident at the junction so it should start to speed the process up very rapidly.