By Danilo Falco
COO & Systems Manager at 4CADIA Factory
In the second article in this series on blockchain and the insurance industry, I talked about the main aspects of the revolution that this technology can inspire in one of the most conservative industries in the world. Now, in this third and final text, I will talk about some of the cases that are already on the market.
Failures and risks
It is understandable that the insurance industry is afraid to adopt a new and innovative technology like blockchain. After all, insurance does mess with one thing: risk prevention. However, almost the entire process leading to the signing of an insurance policy can be a potential point of failure in the system.
In general, potential policyholders still call the insurance company to schedule a broker’s visit, orders are made on physical forms, and payment methods still go through human supervisors. Little is automated, and slowly data and information gets tangled up in a complex and fragile network, paving the way for errors and fraud that can harm an unlimited number of people. As I mentioned in the first text, the FBI estimates that in the US alone, $40 billion is lost annually in insurance fraud schemes — that’s excluding health insurance fraud.
Considering these facts, it is actually curious that an industry that prevents risks fears using blockchain because of the novelty of the system, but adheres to a much riskier data processing model than blockchain would be. However, some companies are already paying attention to the advantages of the new technology, transforming themselves radically.
Etherisc
Probably the most successful case is the German Etherisc, a company that develops decentralized and open source insurance applications based on smart contracts. Since it entered the market in 2017, Etherisc has developed six applications for companies in the sector.
An Etherisc smart contract can check insurance claims using multiple data sources — or “oracles,” as the company calls them. For example, one of Etherisc’s customers is an aviation company. In the event of the company’s claiming insurance for the loss of an aircraft, the Etherisc smart contract can verify the loss or damage suffered by the insured by means of satellite images. This is done in a fully automated manner, within the blockchain’s ledgers, even before any human investigation.
Despite the limited number of companies and applications developed by Etherisc, the precedent is already established: through a collective network of data and information that can be mutually checked and confronted, an automated and practically fraud-proof process is established for the investigation of ransom demands. Market companies can develop their own information system within the blockchain and use it in the most diverse market segments.
Guardtime: offshore security
But if insurance companies still fear adopting the blockchain on dry land, on the high seas the situation is a little different. The main example is Guadtime, a Californian company that teamed up with EY, A.P. Møller-Maersk, ACORD and Microsoft to develop the Insurwave platform, launched in 2018. The platform’s objective is to offer monitoring and the possibility of recalculating real-time insurance prices for marine freighters.
Currently, the company performs risk monitoring for more than 1,000 ships. In its first 12 months of operation, Insurwave made more than 500,000 automated transactions between insurers and policyholders, accounting and processing data such as weather conditions, ocean location, war and offshore piracy information, and marine geography. This is all done through blocks of information in the blockchain.
In a way, it is not surprising that giants like EY and Microsoft have teamed up to use the blockchain for merchant marine insurance. As Tom McDonald, co-founder of R3, said, this is a business whose pricing is “notoriously complex” — and only a network of information capable of real-time accounting for complex data like blockchain can solve that problem.
In short…
In this series of articles, I have tried to demonstrate that using blockchain in a practical way in such a complex industry as insurance is perfectly possible. In fact, blockchain is the best ally of insurance: its agile processing of complex data makes it perfect for use by insurers, agents and brokers, and creates a level of security against fraud and mismanagement never before seen in the market.
As I mentioned in the first article, the use of this technology in the market is no longer a distant dream. I would say that it is now a possible dream, which becomes a reality every time a forward-thinking company discovers the uses of blockchain. The road is still long, but I believe we are already getting close to a decentralized, free and collectively built future.
