Embracing blockchain solutions to tap new opportunities
Distributed ledger technology (DLT) and blockchain solutions have rapidly evolved from hyped buzzwords to practical tools that can empower businesses in every sector. Insurers can leverage these technologies to address pressing issues, particularly around worsening expense ratios
There are a great deal of frictional costs in the insurance market with even a relatively small improvement having a considerable impact on profitability. As collaboration is vital for survival in the industry, back-office processes need to be perfected to reduce the often high costs of doing business and better defend against up-start competitors.
“As disruptive companies are entering the insurance market, large commercial firms are taking a long time to develop new products. When there is efficiency in the back office, it can increase the speed to market with new products, and improve processing times for claims and premiums,” says David Edwards, chief executive of ChainThat, a specialist provider of blockchain solutions serving the insurance and reinsurance industry.
Lloyd’s of London estimate there is an insurance gap of $160 billion in emerging nations, clearly showing the potential of more effective insurance products on a global basis.
When the back office becomes more efficient, insurers can focus on making the market, providing risk management services and finding the right source of capital, as opposed to managing the process around the contract, accounting and claims administration.
DLT and blockchain are set to play an increasing role in the global insurance ecosystem, as these technologies provide a platform to share data in a digital format, enabling firms to move away from paper-based systems and guarantee all companies have the same data without relying on a third party.
These solutions also help co-ordinate the data-sharing process. The smart contracts within the blockchain and DLT allow firms to set an agreed process and state rules between the parties, which removes the need for most traditional disputes.
It’s clear blockchain and DLT are a natural fit for the commercial insurance and reinsurance industry as the business model sees brokers dealing with reinsurers on a peer-to-peer basis without the need to go to a central service provider for that transaction.
“We’ve always had technology solutions coming into insurance that don’t match the system in place. For the first time with blockchain and DLT, we now have technology that matches the business model and can support processes in a natural way as opposed to having the limitations around a centralised technology provider,” says Mr Edwards.
It’s not just insurers that can benefit from these advancements with end-consumers of insurance products able to access relevant new products which better meet their needs. By moving away from competing on the transactional side of operations, insurers can use their data assets to create products that have a strong value proposition.
Awareness of the potential applications of blockchain and DLT in the insurance industry has grown in recent years with board executives actively pursuing opportunities in this area.
As the benefits of these technologies in the sector become better known and efficiencies can be seen throughout the value chain, there will be an increased drive to use production solutions, across both the small and big players.
The services and solutions offered by ChainThat leverage new decentralised technologies to enable a fundamental improvement in peer-to-peer processing. Insurers are able to collaborate securely peer to peer with increased speed and greater operational productivity, ensuring they stay at the forefront of a rapidly changing industry.
“If insurers are slow to embrace these powerful technologies, then their competitive edge will disappear. There is a major risk of being disrupted if you’re not doing anything in the space and simply watching other firms innovate instead,” Mr Edwards concludes.