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Experts predict within the next three to five years, blockchain, or distributed ledger technology (DLT), will begin to have a significant and quantifiable impact in the insurance industry. As the technology matures to demonstrate usability and value, several factors will contribute to cautious and guarded levels of implementation in the near term.
While many insurers continue to evaluate blockchain through a financial filter, there is little precedent within the industry for imagining how blockchain might be used in insurance operations. Further, a scarcity of talent capable of architecting enterprise-level blockchain solutions in the insurance domain also contributes to lack of progress in launching immediate project plans.
Delays aside, blockchain can emerge as an extremely useful tool in insurers’ financial management, especially in the area of payments from a Bitcoin standpoint, and in terms of both data protection and anonymity around payment processing. But perhaps the use case with the greatest potential for the insurance industry, lies in the ability of blockchain to transform the way insurers deal with rapidly increasing amounts of data.
By improving data security, validating data accuracy, and ensuring data continuity, blockchain can help insurers negotiate, protect and utilize the growing flood of market, policyholder and regulatory information streaming through insurance markets.
Improving Data Security and Access
At its core, blockchain is principally a messaging system with read-write access protected by sophisticated cryptographic keys available in the latest generations of security technology. Effectively a shared database on which consensus is continually sought, blockchain does not require a system administrator.
The technology proactively resolves potential data conflicts because it is hosted by innumerable computers simultaneously, making it nearly impossible to corrupt. And by using blockchain, policyholders could provide secure access to data insurers need, essentially by providing unique public keys.
For the insurance industry, this means secure access to medical records, telematics, driving or home sensor data, and a host of other valuable categories of sensitive information. For the policyholder, it means much more control over personal records, and greater comfort that personal information is handled with tight protection, and by the appropriate need-to-know resources.
Validating Data
The inherently decentralized nature of blockchain functions as a form of built-in security mechanism, helping to ensure data validation. It also increases resistance to malicious attacks by providing redundancy and preventing potential intruders and hackers from being able to exploit the system at any single point of access to data. Blockchain’s integral redundancy also makes it extremely useful for insurers in protecting information about insured assets and events from hackers and fraudsters.
Consensus on blockchain data is achieved in part via a distributed network of verification agents, which consistently authenticate data blocks before information is permanently recorded. The random selection/assignment of verification agents further ensures the integrity of the database. The very structure of blockchain can lead to much more effective safeguarding of the vast amounts of information required by insurance entities. It can permit easier management of data and identification of individuals and associated personal information. Also, it makes fraud more difficult to perpetrate.
Ensuring Data Continuity
When utilizing blockchain, the data needed by insurers exists in an external environment and is distributed across the blockchain network. It is essentially an unbroken record of all historical transactions and current policyholder information—in effect a virtual and permanent audit trail.
In the unfortunate event of an insurer system breach or localized disaster, insurer and insured information located on the blockchain network would remain inviolate. As noted previously, even if one particular block is altered, millions of duplicate blocks would remain secure and immediately identify and isolate the damaged block. In this way, both personal and institutional data is made more secure, and a rapid resumption of business is possible with the uncontaminated data available through other access points.
Taking the Next Step
At this point, blockchain can theoretically offer several operational advantages to insurers, but evaluation of the availability, security and data integrity benefits of this emerging technology will be ongoing for some time. To productively accelerate the learning and implementation curves, insurers can consider the support of industry-focused managed services partners with rising blockchain expertise. The key to success in such partnerships is not just the technical blockchain expertise, but the abilities and experience of partners in end-to-end insurance operations—a critical factor in alleviating on-the-job business workflow training while the “outside” blockchain expertise is being utilized.
Initiating a blockchain project today may seem like a daunting task, but it is a natural evolution on the path of “inside-out” and “outside-in” digital enablement in insurance. It’s a natural technology-driven progression which boosts accessibility, risk mitigation, and security in managing the ubiquity of structured and unstructured data sources in the business of insurance.