State Farm is in the process of creating a blockchain application to assist in subrogation, leveraging open-source software, in an attempt to create efficiencies in a system it found to be full of redundancies.
Innovation executive Mike Fields will detail the carrier’s journey in a
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“We think we have a compelling story,” he says.
Phase one was a proof of concept example undertaken with another carrier, followed by shadow testing in phase two; in which everything will be run in parallel with the other carrier, except for payments, which will be followed by an audit. Phase three will involve undertaking the process in the real world “with one or a few carriers,” and phase four would involve a “more widespread” endeavor that would require the participation of several other carriers, according to Fields.
Now, the company has been working with at least one other insurer, and is in phase two of testing.
Fields said the company “didn’t want to employ technology just for technology sake.”
But State Farm recognized a need for a better means of working with “the many third parties that we do business with–either other carriers, or government agencies,” according to Fields.
The aim is to eliminate repetitive transfers of funds back and forth between insurers, as well as to improve the customer experience, and build new business networks in innovative ways.
“That is a business process all carriers participate in, and from everything we [found as we] investigated, it’s a highly inefficient process overall,” Fields said of subrogation. “And it is the classic way that a distributive ledger would be useful, because you’re exchanging funds with other carriers, and we [looked into] how you do that in a secure and transparent way.”
As subrogation is still a highly paper-based process, as Fields noted, it can involve unnecessary mailing costs, as well as differences owed between carriers that could be netted out.
“Blockchain provided a foundation that made that more transparent,” Fields said.
Fields noted that while the goal is to have many carriers interested, it is not necessary to have every carrier join in order for the new blockchain application to be effective. That said, there is every intention to make entry as simple and straightforward as possible.
“You’re establishing a new business network, and new methods of doing that, and that’s really going to be the long pull in this,” he said of the project. “We need to make sure we’re secure, but we’re on track to do that. The big thing is getting the business network up, [deciding] who’s going to run it, and how it’s going to be fair across large and small [applications]; and those are the riskier elements of this.”
