Blockchain poised to accelerate industry decentralization

Slowly and steadily, blockchain is entering the corporate mainstream.

A new survey of 600 executives from PointSource finds 64% of companies are now seriously looking into blockchain, though most, 42%, are still in the discovery phase of adopting the technology.

The implication for insurers is blockchain–an open, online database or general ledger that records any and all transactions that are verified within a transparent global network–may contribute the increasing decentralization of the industry.

Additional industry research from Capgemini confirms that members of the insurance ecosystem–such as insurtech partners–may be assuming many of the responsibilities of the relationship, with traditional insurance players playing more of a back-end role.

“With value-chain and operating model disruptions from InsurTech startups likely to continue, we can expect continued―and rapid―insurance ecosystem evolution,” the report’s authors state. “Within this dynamic ecosystem—and with new InsurTech players continually entering the market–it will be necessary for insurers to manage customer retention and to develop selective but strategic partnerships. As new entrants slowly capture the customer interface, insurers may face diminished control of their customer relationships.”

Andrey Rudakov/Bloomberg

But if the industry expects to run as an interconnected web of players, who is ultimately responsible for policyholder data and service delivery? What happens to the crucial trust that forms the bond between insurers and customers?

The Capgemini analysts expect an increasing trend toward consumers shifting to “one-stop apps to buy and manage all their policies.” As a result, this “will lead to diluted brand loyalty and the need for a greater focus on innovative engagement for customer retention.”

The effect of this is partnerships will be key to success moving forward in the digital economy, further suggesting a highly decentralized industry is evolving. What’s going to make such a mesh of players cohesive and trustworthy? This is where cognitive computing and blockchain come together, not only empowering partners, but consumers as well.

The report’s authors see new business models based on blockchain technology, combined with cognitive intelligence. “Insurers may be able to design micro-insurance products that target currently underserved markets,” they noted. “Blockchain technology-enabled smart contracts and digital assets will enable “provide secure, reliable, and fast applications, which will enhance service quality and enable firms to cut operational costs through automation of policy administration and claims management. Smart information assets, which is an extensive database of verified information with timestamps, can be created using blockchain and leveraged in the actuarial and underwriting functions.”

In a recent interview, MIT Sloan senior lecturer Michael Casey, co-author of the recently published book “The Truth Machine: The Blockchain and the Future of Everything,” calls blockchain “a machine that allows us to arrive at that sort of truth. Previously, we had to rely on centralized institutions to deliver us their truth. We might audit Apple's quarterly results every three months, but with this assumption that their record is truth. And then we built everything on top of that. But the blockchain is a decentralized mechanism for arriving at that, removing the capacity of these big gatekeepers to set what that truth is.”

In an industry built solely on trust–as is the case with insurance–the ability to guarantee trust in transactions may be game-changing. For starters, it may help things run more efficiently. Casey says "the cost of trust" has been extremely taxing, and prohibitive. “The world is burdened with enormous costs because people can't trust each other,” he points out. “Skyscrapers are filled with accountants who are constantly reconciling their ledger with the ledger of the other company they're working with. This results in multiple, centralized ledgers that have to be reconciled because people don't trust each other, and that reconciliation process is incredibly time-consuming and costly.”

This may even reduce the need for auditing, Casey adds. “If we get to this point where the record of transactions is universally recognized at any given time to be absolutely accurate, and we have real-time accurate data, you don't need audits. You don't need quarterly reports. I think this is potentially the most disruptive technology we've encountered in a while.”