EXCLUSIVE: ‘New Kids on The Block’ – Aniqah Majid, FF News in ‘The Insurtech Magazine’
A decentralised ledger that, among other things, facilitates the process of recording and tracking assets (house, car, land, etc), each unique transaction encrypted and grouped into ‘blocks’ of data. Once filled, they are linked to the previous block of data, creating a chain, setting it apart from 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 come in various varieties of public, private and permissioned access) can see transactions occurring in real-time.
As a McKinsey report pointed out, most of the financial sector has warmed to the technology, but insurers remain more tempered.
The noise around blockchain use in the sector has grown sonorous, though, in the last year. Currently still experimental, its adoption by insurance is secure due to other, existential forces, affecting the industry.
“The emergence of decentralised finance non-fungible tokens and, more recently, the metaverse should lead, as any new technology will, to new insurance needs,” says Olivier Jaillon, 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, as well as more specialised markets like renters or micro-insurance. As well as using APIs for its embedding process, Wakam has a 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,” WHO SAID? “Today, there are 600,000 active contracts across various insurance products. This grows by 10 per cent each month, in line with our partner growth. This makes us one of the biggest case studies in the world.”
Wakam has recently adopted the Tezos blockchain ecosystem, in the process becoming what’s known as a corporate baker as it transitions from private to public blockchain use.
The Tezos blockchain uses a consensus algorithm based on a Liquid Proof-of-Stake mechanism (LPoS). 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, incentivising 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.
ClaimShare is an insurtech working in the fraud and risk assessments field, which uses blockchain to allow insurers to collaborate and enhance their fraud detection systems. It’s aimed at detecting ‘double-dipping’, whereby an insured makes multiple claims for the same event with different insurers. This duplicate claim filing is thought to be responsible for five to 10 per cent of insurance fraud but has, hitherto, been virtually undetectable because there is no industry data sharing standard and regulation restricts the sharing of sensitive, personal information. ClaimShare uses the private Corda blockchain to allow insurers to put public claims data on a ClaimShare ledger so others can check if the claim they’ve received has already been paid out.
In motor insurance, StateFarm and United Services Automobile Association (USAA) are examples of companies that have fully integrated blockchain technology into their subrogation claims processing. It followed a two-year trial to see how effective it was in relieving them of the laborious paperwork attached to pursuing third parties responsible for causing a loss to their respective insureds. They are now inviting others to join the network.
“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… hasn’t changed much in terms of manual processes, the customer experience, in most cases, is shocking.”
Gauhman highlights a stubborn issue still holding back 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 per cent 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.
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.”
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.
Gauhman theorises an alternative type of insurance, mirroring what’s happening elsewhere in the financial services industry.
“I wonder if something will start emerging, alongside the alternative financial services system, or alternative internet, that is starting to emerge, that will have insurance products. And then the opportunity will be too big to miss.”