“it an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”

Blockchain is a write only database, where all participants have identical copy of information. The information stored is timestamped and the data is cryptographically secured

Blockchain network functions as

• a backend database that maintains an open distributed ledger
• an exchange network for moving value between peers
• a transaction validation mechanism that does not require intervention from an intermediary 

How & Why does a Blockchain work in Insurance?

Like multiple other business application due to it’s de-centralized, distributed ledger & security, Blockchain is used in insurance in multiple ways

Decentralised Validation – The data is packed into blocks that can only be added to the blockchain after consensus is reached on the validity of the action, Thus allows participants to place their trust in transactions even in the absence of a central authority, thus enabling disintermediation.

Redundancy – The blockchain is continuously replicated on all or at least a group of nodes in the network. Thus, no single point of failure exists. 

Immutable Storage – Each stored block is linked to its previous block in the chain, making it almost impossible for hackers to change subsequent blocks, as they would have to manipulate any succeeding block plus most replications. 

Strong Encryption – Digital signatures based on pairs of cryptographic private and public keys allow network participants to authenticate which participant initiated a transaction, owns an asset, signed a smart contract, or registered data in the blockchain. 

Smart Contracts – Blockchain enabled platform can be used for smart contracts, which are small programs running on a blockchain and initiating certain actions when predefined conditions are met. 

Five core blockchain capabilities hold tremendous promise for enabling the Insurance ecosystem

1. Distributed Ledger
2. Security & Cryptography
3. Validation & Consensus
4. Transparency & Auditability
5. Cryptocurrency & Bitcoin

Most of the credible and scalable use cases adoption in Insurance so far have come from three areas

1. Overhead & support functions, Procurement, and Finance/ Re(In)surance accounting
2. Reinsurance contracting across Life, and P&C
3. Distribution, underwriting, servicing and claims mgmt. of microinsurance products (fixed benefit life & health, motor); Parametric insurance

What are the Lessons from the banking sector for Insurance?

The banking sector’s experience with Blockchain offers a useful lesson for Insurance

• The R3 consortium has pivoted and successfully focused on more achievable, short-term problems such as KYC, AML, credit card authorisation and fraud, and cross-border payment reconciliation, after initially struggling with the complex global payment infrastructure and governance
• B3i, RiskBlock Alliance, ChainThat, and iXLedger are some of the platforms that are working with the Insurance ecosystem to build ‘blockchain interoperability’ rather than ‘winner takes all’

What are the possibilities from blockchain in insurance value chains? 

The possibilities from blockchain technology for the life and non-life insurance value chains are indeed compelling. Capturing this opportunity will require insurance incumbents to proactively work across four dimensions

• Diagnosing and prioritising use cases, POCs, and full scale production across the value chain
• Working with the digital ecosystem (incubators, start-ups, regulators) to leverage partnerships/ alliances (rather than waiting to build inhouse)
• Standardising  internal organisation, processes and technology to enable blockchain interoperability
• External connectivity with  blockchain platforms and consortia

Technology and digital trends are reshaping global demand and supply of insurance. We can certainly say, Blockchain disruption is one of them which has just began and is here to stay.

About Navdeep Arora

Navdeep Arora is a seasoned strategist, advisor, and investor in Insurance and Financial Services. Navdeep’s particular focus and areas of expertise are Insurance Strategy and Innovation. He works across the Insurance ecosystem including Insurance companies, data and technology providers, strategic investors, and start-ups in the InsurTech space.

Formerly, Navdeep Arora was a Senior Partner with McKinsey & Company (16 years), and a Partner/Global Head of Insurance Strategy with KPMG (3 years). Navdeep’s educational qualifications include a Bachelor’s and a Master’s degrees in Engineering, and an MBA from Harvard University.

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