Ep. 148 – Challenges and opportunities of blockchain in the insurance industry – insights from IBM

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Mark McLaughlin is IBM’s Global Insurance Director, leading IBM’s Global Insurance strategy, solutions, and partnerships.  Mark’s teams analyse trends in the insurance business and in technology, predict strategies for insurers, and build IBM insurance solutions to meet insurer needs. In this podcast we discuss the challenges and opportunities of blockchain in the insurance industry with special insights from IBM.


What is blockchain?

For Mark blockchain is a trusted shared ledger. It enables business entities with different interest and different goals, that may not 100% trust each other, to establish a common ground where a set of documents, processes and data is maintained by a group across a business network.

It is maintained in a way that is immutable where everybody can see the changes that are going on and where everybody has a record of it. Blockchain also have features like smart contracts that can help automate business processes in a trusted manner by all participants.

Mark points out that there are a lot of different things you can do with blockchain from digital currencies to running shared business processes.


How has insurance embraced blockchain technology?

Mark believes insurers are feeling the heat on innovation due to the 46% CAGR on Insuretech investment and the entry of large players like Ping An and Amazon into online distributed type insurance ventures.

Insurance being baked into other industries such as the purchase of an airline ticket in the US now comes with the offer of travel insurance as part of the process.

The insurance industry knows that they have to figure out ways to connect to broader ecosystems and to innovate. Blockchain is one way of doing that. Whilst insurers have a high level of interest in blockchain they have had a little trouble getting started in some cases.

Blockchain has great potential as a technology and an increasing number of insurers are willing to embrace it. The challenge however is with the business model. Other technologies such as AI (artificial intelligence) do not have the same challenge. AI is very easy to visualise, it can be used to better process a claim, underwrite a risk and advise an insured.

Blockchain is a little tougher. The challenge isn’t the tech it’s the use case behind the technology. Insurers who have been successful at using blockchain are those who have correctly defined the business value. It is however a very tricky exercise because blockchain is about creating networks and you have to ensure that the value line up across all the players within that network.


Digitising business during COVID

There is a tonne of complexities in the insurance industry and people tend to stick to the process they know because they know how to manage the complexities within that process.

However, some forward-thinking companies have during this COVID world looked at digital interactions and how they can rethink their business to leverage new technologies. For Mark, It is about “how do I build better interactions with my end user? How do I get closer to risk? How do I do a better job of providing personalised and customised advice around that risk? How do I connect relevant products and services at the point of risk?” Insurers that can figure that out and do that at scale will be the most successful ones in the future.


Approaches to innovation and blockchain

Too often insurers judge innovation in its ability to sell more of their existing products. The more successful insurers are those that think “Instead of how do I take my existing policies and my existing business and adapt them, they think more about how do I reinvent the entire risk process?” Too often the decision making process insurers get caught up with is very short term instead of thinking more long term and the bigger picture.

Connectivity to customer and connectivity to risk is very important for insurers according to Mark. Blockchain provides some opportunities to either streamline the process to speed up your interactions with the customer and get more conversation, and to connect more risk data to the process and new customers that you couldn’t have easily reached out to before.

With the ever increasing number of blockchain business networks from trade networks, supply chain networks and others, insurers can’t take an approach of selling them insurance. They have to engage them in the early days of their development not to sell them policies but instead to understand the kind of data streams they can now access to better inform their policies and their risk advice.


Best practices when evaluating new innovating technologies

First of Mark advises companies need to understand what the technology can and cannot do. For example, in the case of blockchain they need to understand the value a distributed ledger can bring and what can and can’t be done from a security and an optimization standpoint.

Second you need to understand what’s the business problem you’re trying to solve. Not all business problems can be solved by blockchain. Business problems that are particularly well suited for blockchain are those where there is a large network of players that have complexities in their relationships such as in information exchange between them. These are complexities that blockchain can take out along with a number of costs.

Third tackling those challenges from a consortium perspective has its challenge. Building for example a network of 40 insurers for subrogation, reinsurance, or proof of insurance can take a very long time and once there they tend to move quite slowly.

What Mark feels is more effective is having two or three insurance players who are equally motivated to improve a shared process between themselves. The point being that the issue trying to be resolved only involves a few players instead of a larger number.

The biggest problem Mark points out in blockchain initiatives is on “do we have the value convened correctly?” It’s a lot easier doing that with a few players than with a network of 40. Mark gives us the example of TradeLens which didn’t go to the industry to create a network of 40 shipping companies. IBM instead worked with Maersk, the dominant player in the industry, to work out the challenges of that industry.


Insurers collaborating with other industry led blockchain initiatives

There exists large opportunities for insurers to collaborate with other industry led blockchain initiatives whether that’s in supply chain, pharmaceutical or any other industry. The key though is not about taking a selling traditional insurance products approach.

The key is to look at how to extract data from those chains in order to build a different risk value proposition based on that data. It’s about using that data to more effectively resolve claims in a speedy manner.

The opportunity is participating in these things and developing new risk propositions over time and taking advantage of the data that exists in those change. Insurers can extract value of a chain that’s already connected to risk, use that to inform a claims process, an underwriting process and inform both the servicing and advice being provided.


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