{"id":535,"date":"2017-10-27T05:27:36","date_gmt":"2017-10-27T02:27:36","guid":{"rendered":"http:\/\/kusuaks7\/?p=140"},"modified":"2025-03-25T11:15:33","modified_gmt":"2025-03-25T11:15:33","slug":"blockchain-could-make-the-insurance-industry-much-more-transparent","status":"publish","type":"post","link":"https:\/\/www.experfy.com\/blog\/fintech\/blockchain-could-make-the-insurance-industry-much-more-transparent\/","title":{"rendered":"Blockchain Could Make the Insurance Industry Much More Transparent"},"content":{"rendered":"\t\t
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\n\t\t\t\t\t\t\t\t\tReady to learn Marketing analytics?\u00a0Browse courses<\/a>\u00a0like\u00a0Blockchain for Finance Professionals<\/a> developed by industry thought leaders and Experfy in Harvard Innovation Lab<\/em><\/strong>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tWhile Edward Lloyd is largely credited with\u00a0commercializing<\/a>\u00a0the insurance industry, with the creation of his namesake firm, Lloyd\u2019s, over 330 years ago, the original concept of spreading risk (or \u201cmutualizing\u201d) goes back even further. Hundreds of years before Lloyd\u2019s was formed, Chinese merchants would spread their valuable cargo across multiple vessels, with each one carrying an equal share of another merchant\u2019s goods. In this manner, no single loss would be catastrophic. This spread of risk, of course, also prevented a merchant from absconding with his ship\u2019s goods and never reuniting with the other traders; he\u2019d have too much to lose. In effect, they all had skin in the game, which remains one of the most elusive elements of\u00a0modern finance. Both then and in 1686, when Lloyd\u2019s was born in a London coffee house, the global insurance industry was\u00a0a business of\u00a0utmost good faith, as it remains today.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tThus\u00a0a trust and efficiency engine like\u00a0blockchain technology<\/a>\u00a0has the potential to\u00a0drive radical change in the insurance industry while improving transparency and outcomes across the entire value chain. Intermediaries or \u201ctrust brokers\u201d do not have to be written out of the equation \u2014\u00a0or\u00a0disintermediated<\/a>\u00a0\u2014 as many blockchain enthusiasts\u00a0argue. Rather, they can become early adopters of the technology. Admittedly, this shift will be hardest on the established monoliths in the industry, for it will require uncomfortable transparency and price corrections in their business models. This will be toughest on the portions of the industry that are the least differentiated, where consumers often decide based on price: auto, life, and homeowner\u2019s insurance. However, even these commodity offerings can find ways to innovate and survive.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tBlockchain, which is a form of mutualized record-keeping in a near irrevocable time-stamped ledger, has some\u00a0truly profound implications<\/a>\u00a0for the world. So much so that it is being likened to a\u00a0foundational technology<\/a>, much as\u00a0the internet was in the early 1990s. As with all such innovations, a global standards war is under way. And, as with any standards war, demystifying a new, powerful technology is partly in the hands of industry bodies, such as the\u00a0Global Blockchain Business Council<\/a>, but mostly in the hands of bold leaders who see this tool not as a threat but as a source of competitive advantage, efficiency, and security.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\t\nWhen we buy an insurance policy at an individual household level or for a large, complex business or project, the only items that seal the deal are some papers with promissory statements. Insurance policies and lottery tickets have the same payoff properties, with the one claimed on bad news or undesirable events and the other claimed by very happy lottery winners. They both rely on odds \u2014\u00a0and accrue massive amounts of hopes, aspirations, risks, and, naturally, money. If a lottery is not honored, the claimant has recourse. By contrast, if a life insurance claim is denied, the policyholder is long gone, leaving their next of kin, beneficiaries, and estate to\u00a0connect the dots<\/a>\u00a0at a time when cash is immediately required. Herein, as with all insurance, is where the concept of utmost good faith is laid bare. Without this utmost good faith backed by hundreds of years of successful, albeit somewhat slow, claim payments, the global insurance industry would pale in comparison to the more than $5 trillion in premiums it garners today.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tAnd yet trust in business institutions, and the financial services sector in particular, is at an\u00a0all-time low<\/a>. While the large banks are at the center of this trust vacuum \u2014\u00a0with a seemingly steady stream of scandals, such as the recent Wells Fargo account rigging debacle \u2014\u00a0the erosion of trust is bad for everyone. It\u00a0breeds indifference, which in turn breeds a yawning gap between underwriters, whose balance sheets absorb risk (the risk takers), and customers, whose enterprises create risks (the risk makers).\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tThis gap between insurers and customers can be widened into a gulf by trust brokers, who dominate the top-heavy insurance brokerage market and benefit from its opacity and byzantine operating standards. This is particularly troubling because we are in a time beset by\u00a0complex risks<\/a>, requiring greater trust, speed, and security in these relationships. For example, a firm\u2019s political risk insurance policy can take up to a year to underwrite, delaying any investments and cross-border capital flows. In these types of complex \u201ctrust but verify\u201d transactions, blockchain can do more than merely\u00a0hasten decision making for insurance placement; in many ways it\u00a0is\u00a0the insurance.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tThe top 10 insurance brokers in the U.S. control the lion\u2019s share of revenue for originating and placing insurance, a process that labors under an unnecessary burden of friction, regulatory pressure, and agency issues, for which blockchain is well-suited to help the industry modernize. Firms such as Aon, Marsh, and Willis Towers Watson have consistently dominated this list, commanding $32 billion in global revenues, which is derived from intermediating insurance and related services. In the risk transfer process, at its simplest level, size does not matter. In 2015 these top three players generated 48% of the revenues among the top\u00a050 brokers<\/a>\u00a0in the U.S.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tClearly, a good share of the industry\u2019s revenues is derived from services and a ravenous acquisition spree; however, when we shine a light on the actual elemental levels of the risk transfer value chain \u2014\u00a0the process in which insurance flows through origination, quoting, binding, policy issuance all the way through to claims and renewals \u2014\u00a0it suffers from an enormous\u00a0drag coefficient\u00a0and a troubling\u00a0trust deficit.\u00a0Herein lies the most transformational opportunity for blockchain in the insurance industry. Simultaneously reducing friction while enhancing trust can help drive down insidious levels of underinsurance and \u201cuninsurability.\u201d\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tIn no small measure, these issues contribute to underinsurance and, worse yet, to leaving many risks completely uninsurable, wherein their costs are ultimately borne by taxpayers through agencies such as FEMA. In California, for example, a mere\u00a017% of households<\/a>\u00a0carry earthquake insurance, despite the obvious risks and the reality that most people live paycheck-to-paycheck in the U.S. This low market penetration has as much to do with customer misperceptions of the likelihood of catastrophic events as it does with the prohibitively high costs and inefficient delivery models in the insurance industry.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tFlood insurance is another example. In these types of situations, complex conditions such as moral hazard (taking risks without bearing the consequences), insurer and broker opacity, and mispricing conspire to produce generally inferior outcomes for consumers, insurers, and ultimately governments, which tend to backstop these programs.\u00a0Research<\/a>\u00a0has shown that a 1% rise in insurance adoption translates into a 22% decrease in the taxpayer burden of uninsured losses.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tBy leveraging blockchain, the insurance industry has a unique opportunity to revisit its\u00a0entire value chain, which has always hinged on utmost good faith and trust. For example, in the U.S. there is approximately $7.4 billion in\u00a0unclaimed<\/a>\u00a0life insurance money from\u00a0insured people passing away and their beneficiaries being unable to connect the dots. A blockchain-based registry could help address this challenge while retaining anonymity and improving security as a distributed public record. Part of the driver of these unclaimed funds is known as\u00a0longevity risk:\u00a0People living longer means more life insurance policies mature and the memory of who was insured and where physical policy documents may reside fades. Rather than being a threat to the industry, a blockchain-based public ledger would enable the rightful claimants to these proceeds to receive their due, rather than having these unclaimed funds be sold in a secondary market or stagnate.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tAnother area where blockchain can power the insurance industry, especially in complex global markets where claims adjudication is confounded by the lack of on-the-ground loss adjusters, is in creating a validation engine. Part of the reason insurers are wary of insuring tangible assets in developing markets is the fear of fraud and losses that cannot be validated. In these cases, the insurers\u2019 right to\u00a0subrogate,\u00a0or go after the assets of others to recoup\u00a0their losses, is largely unenforceable. A blockchain-based claims validation network can serve as a utility benefiting the entire industry by recording in a semipublic blockchain ledger the physical status of an insured asset, which in turn could help improve insurance penetration and adoption rates in emerging and developing markets.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tFor an industry that invented the concept of mutualizing and coopetition, insurance can gain enormously from the foundational technology of blockchain. Failure to act may consign many large players to the continuing trust deficit or, worse, irrelevance.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tOriginally published at HBR<\/a>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"

A trust and efficiency engine like blockchain technology has the potential to drive radical change in the insurance industry while improving transparency and outcomes across the entire value chain. Intermediaries or “trust brokers” do not have to be written out of the equation — or disintermediated — as many blockchain enthusiasts argue. Rather, they can become early adopters of the technology. <\/p>\n","protected":false},"author":60,"featured_media":2998,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[192],"tags":[98],"ppma_author":[1625],"class_list":["post-535","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-fintech","tag-blockchain"],"authors":[{"term_id":1625,"user_id":60,"is_guest":0,"slug":"dante-disparte","display_name":"Dante Disparte","avatar_url":"https:\/\/secure.gravatar.com\/avatar\/?s=96&d=mm&r=g","user_url":"","last_name":"Disparte","first_name":"Dante","job_title":"","description":"Dante Disparte is the founder and CEO of Risk Cooperative, a strategy, risk and capital management firm focused on mid-market opportunities, market expansion and innovation on a global scale. He is the co-author of the book “Global Risk Agility and Decision Making<\/a>” and was recently selected as one of the 40 leaders under 40 by the Washington Business Journal and among the top 100 most influential leaders in D.C., in the inaugural Powermeter 100 list.  He serves as the vice-chair of the board of the Harvard Business School Club of Washington, D.C., and on Harvard Business School’s global alumni board. He is the founder and chair of the Business Council for American Security and a board member of the American Security Project. He also serves as a member of the Bretton Woods II Council with New America."}],"_links":{"self":[{"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/posts\/535","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/users\/60"}],"replies":[{"embeddable":true,"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/comments?post=535"}],"version-history":[{"count":4,"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/posts\/535\/revisions"}],"predecessor-version":[{"id":37453,"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/posts\/535\/revisions\/37453"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/media\/2998"}],"wp:attachment":[{"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/media?parent=535"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/categories?post=535"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/tags?post=535"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/www.experfy.com\/blog\/wp-json\/wp\/v2\/ppma_author?post=535"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}