Blockchain has been a hot topic of conversation for a few years now. How far has the technology progressed?
Blockchain is not a new technology, per se. It has been around for a while and has definitely proved its mettle. I’m very confident about the stability of the platform, the stability of the technology and the impact it can have. What we’re trying to do is to bring it to the enterprise world, and we do see some success. We are hearing more buzz in the market than we ever heard before. People want to hear about it and want to talk about it. They’re ready.
Can you give us a couple of examples of where blockchain applications are currently in production?
Gigaforce is currently focusing on mainly three areas. One is subrogation, another is salvage, and the third is reinsurance. Other companies are specializing in areas like title. Outside of insurance, the financial area is very strong for blockchain, including some of the stock exchanges implementing it for the settlement process.
I think the biggest thing that blockchain is able to do is bring trust, because there’s always a history there and always the possibility of audit. You can go back and see all previous transactions.
The blockchain is built on two parts, cryptocurrency and a distributed ledger. Let’s say there are three companies involved in a process, and they’re part of one transaction. Any update that takes place automatically can get reflected in every ledger that’s part of the blockchain transaction. Let’s say there’s an uninsured motorist, and money gets collected from that person by a collection agency. The moment that money gets collected, the carrier can know about it. So can in-between parties, like law firms and recovery agencies. There is a misconception in the insurance industry that all the parties have to sign up before being part of the transaction, but a private blockchain operates no differently than Docusign. All you need to be part of a transaction is an enabler like Gigaforce and a browser.
Now let’s extend this and look at it from the reinsurance perspective. Once a transaction from a carrier hits the threshold, the reinsurer would like to know each and every update happening on that transaction. Money is just one piece of the information here. Everything, even all the documents exchanged between law firms, is part of a new phase of visibility at the reinsurance level. Now, nobody has to transfer the information manually, on a document-by-document basis. This represents the biggest gain in efficiency.
We’ve come quite a ways in the years I’ve been following blockchain. Are there other applications that you see becoming possible in insurance sometime over the next year or two?
For two years, when I talked with people in the industry about blockchain, they’d say, “We have a hammer; we’re just looking for a nail.”
There’s a whole range of opportunities across the whole spectrum of activities in the industry – distribution management, underwriting, payments, claims, policy administration and reinsurance – although some of the opportunities have trouble gaining traction with management even though they promise efficiencies and better engagement with customers.
I think subrogation should be the first use case because there are multiple partners updating and sharing data, and a sequential process has to be followed in a timely way.
What should the industry be doing today to get ready?
We suggest companies ask themselves six questions about each of their processes:
- Are multiple parties sharing data?
- Will multiple parties be updating data?
- Is there a requirement for verification?
- Is verification adding cost and complexity?
- Are interactions time sensitive?
- Will transactions by different users depend on each other?
If a company answers yes to four or more of those questions, then the company should consider using blockchain.
When people talk about security, they say you’re only as secure as the weakest link in your chain. The same is true when companies talk about how far along they are with digitalization. If a company only talks about digitalization at the company level, they are not digitized. You’re only truly digitalized if you’re digital all the way down to the level of your processes and subprocesses. You need to go across corporate boundaries, too, so you’re collaborating with all the digital sources out there.
The pandemic has been an eye opener. There were a lot of manual activities that could be done only in the office. That’s where the check would come in, so you’d have to be there to make a copy of the check, turn it into a PDF and send it to the next party involved. Now, because everything is digitized, the moment that a check is collected by the first company, everybody in the chain can automatically know. Nobody has to make a copy, scan, email, mail, etc.
There’s also a huge labor shortage in the industry, which puts pressure on companies to automate. And blockchain is a technology that gives you automation right out of the box.
It also cuts costs – we can reduce the cost of claims processing 10% to 15%.
So, I think it’s just a matter of matter of time before blockchain is widely adopted. I don’t think there is any choice.
That’s great. Thanks, Sanjeev.