EXCLUSIVE: Blockchain the Gateway to Insurance Innovation 

Aniqah Majid, Fintech Finance

The ITC Asia Virtual Summit last week saw industry leaders across the sector, from Aviva to CoverGo, come together to talk about the most inescapable technologies dominating the Insurtech industry. In their most technical panel discussion ‘Delivering Smart Contracts through Intelligent Information Management,’ the talk around blockchain technology and its benefits to the internal processing of insurance could not be ignored.  

“Blockchain has been a technology that is unavoidable and inevitable for all of us,” said Edmund Situmorang, the Chief Technology Officer of global insurtech Prodigi (Sinar Mas Group). “I think this is something we should all be looking into. The three-dimensional work of blockchain has helped us to understand [sic] that there is no other way of doing security in terms of keeping and integrity of data.”

Etymologically, blockchain is exactly what it says on the tin

It is a decentralised ledger that facilitates the process of recording and tracking assets (house, car, land etc) and transactions. These unique transactions are encrypted and grouped into ‘blocks’ of data. Once filled, they are linked to the previous block of data, creating a chain, setting it apart for table-structured databases. The tech stack is most widely used for the exchange of cryptocurrencies, specifically Bitcoin. Its decentralised nature allows almost complete transparency, as those with access to the blockchain (blockchains vary from public, private and permissioned access) can see transactions occurring in real-time. 

As a McKinsey report pointed out, the financial sector has warmly embraced the use of blockchain technology in its operations, with insurers remaining more tempered. Like Situmorang said, however, growing digitisation in the sector will see blockchain as an imperative part of insurance in the future. 

The noise around blockchain use in insurance has grown sonorous in the last year. Though currently experimental, its adoption into the industry is secure due to bigger advances in the industry

“The emergence of decentralised finance (De-Fi), Non-Fungible Tokens and more recently metaverse should lead, as any new technology, to new insurance needs,” said Olivier Jaillon, the Chief Executive and Product Officer of embedded insurance provider Wakam. “Therefore, an insurance market related to these products should emerge with a progressive standardisation of available insurance products.”

Wakam is a B2B insurer that provides bespoke, white-label embedded insurance solutions for insurance companies. With a focus on both usage-based and self-service insurance, clients can “create their own product” when it comes to insurance staples like L&H, business, and mobility, and more specialised types like renters or micro-insurance. As well as using APIs for its embedding process, Wakam has a storied history with blockchain technology. 

In 2018, the company was one of the first in the industry to utilise a private blockchain in their management system, first using Sequence by Chain.com, and then Quorum. Its private nature allowed Wakam to freely exchange information with clients and record a high volume of their transactions, which clients could oversee in real-time. 

“We opened our blockchain and created our first insurance policies using it, over two years ago. Today, there are 600,000 active contracts across various insurance products. This grows by 10% each month, in line with our partner growth. This makes us one of the biggest case studies in the world,” Wakam told FF News. 

Wakam has recently adopted the Tesoz ecosystem, becoming a corporate baker. Transitioning from private to public blockchain use

“The Tezos blockchain uses a consensus algorithm based on a Liquid Proof-of-Stake mechanism (PLoS). Block creators, called “bakers”, fulfill – in an eco-friendly way – the same role as “miners” in previous blockchain generations. Each block is created by a randomly selected baker, endorsed by other bakers, and validated by the rest of the network. Bakers put up their stake in Tez (XTZ) as collateral to ensure that blocks are validated correctly, incentivizing network participation, and ensuring network security. By becoming a baker on the Tezos blockchain, Wakam joins more than 350 bakers around the world who participate every day in securing the Tezos network.”

The scope of blockchain is not limited to data storage, as Wakam has found. Insurers can integrate the technology in almost every automated process involved with insurance. In the fraud and risk assessments field is ClaimShare, an insurtech that allows insurers to collaborate and enhance their fraud detection systems, avoiding the release of sensitive data using blockchain tech and AI. The company uses a Corda blockchain, acting as a distributed ledger, allowing insurers to share public claims data immutably. 

On the L&H side are companies like StateFarm and United Services Automobile Association (USAA) who integrated blockchain technology into their auto subrogation claims processing early last year. Blockchain was tried for two years prior in dealing with the laborious paperwork attached to subrogation and is now in full use. 

“Blockchain could change insurance forever, it is such a clear use case,” said Leon Gauhman, the founder and Chief Product and Strategy Officer at the digital consultancy firm Elsewhen. “However, regulators are nowhere close to dealing with it. I think there is a lot more to be done on lower hanging fruit/ If you think about insurance today, it is still lacking data […] it hasn’t changed much in terms of manual processes, the customer experience in most cases is shocking.”

Gauhman highlights a stubborn issue still seizing insurers when it comes to trying new things. As one of the oldest businesses in the world, it relies on the principle ‘if it’s not broken, don’t fix it.’

A recent study by the Capgemini Research Institute found that out of the 204 insurance organisations interviewed, only 18% could be called what Capgemini defines as a ‘digital master.” These findings showed that most insurers do not have the technical capabilities, or work culture to handle the plethora of data at their disposal. 

Much like what decentralised finance and BaaS has done for the banking sector, insurance companies can benefit by experimenting with a range of different products and services. Like Wakam, instead of focusing on annual insurance policies, insurers should move toward usage-based cover, to acutely reflect the needs of contemporary consumers. Transitioning into automated services can only be ensured through the renunciation of legacy systems. 

On the topic of a new, digital-competent workforce, Gauhman said, “[insurers] inevitably have to introduce these changes because this is where we are going. It might be slower and you might be resistant to change, but it will happen. It will also come from the pressure being applied by employees themselves, who want more efficient ways of working.” 

A sizable majority of employers are looking to upskill their staff, especially in insurance, which is currently experiencing a shortage in talent. Insurers who ignore the needs of customers and employees, and are not willing to take risks with new technology stand to lose out on the evergreen gains germinating from innovation, most plainly that of blockchain technology. 

“The gap with regulation is already much bigger than anything else.” Gauhman theorises an alternative type of insurance, mirroring the financial services industry. “I wonder if something will start emerging on the side, like it did with Decentralised Finance (Defi) or Web3. For example we could see decentralised insurance products servicing this emerging alternative ecosystem,. And then the opportunity will be too big to miss.”