Application of blockchain technology in field of insurance
Published: | 28.09.2017 | blog
The technology of the distributed registry gives the potential to the companies in different spheres of activity to enable them to work more efficiently, create new business models and launch innovative products. But, naturally, the reasonable question arises: will the technology “Internet finance” be able to justify the arisen agiotage? The Distributed ledger technology (hereinafter referred to as DLT), also known as Blockchain, refers to the innovations that can offer a tremendous potential to the large companies for more efficient operation and better customer service but it is not sufficiently developed yet for such applications. The Distributed registries are common databases that contain digital lists of the transaction records. Their unique feature is that the identical copies of the registry are “distributed” between several hosting and information storage servers (hosts) that check transactions written in the form of “packages” by means of the agreed process. After checking, the “packages” are blocked with a cryptographic “hash” or an alphanumeric string of the fixed size, which allows the hosts to check incoming data but does not allow data recovery. Conceptually, the cryptographic distributed registries are similar to peer-to-peer networks, or so-called credit platforms, in which the intermediary is useless and therefore replaced by the technology. The transactions can be made instantly and directly between two contracting parties, creating an unchanged record and, theoretically, eliminating the risk of not making the calculations and settling differences with the system. The registry also minimizes the probability of fraud, as it allows you to track the history of the origin of the assets and the history of transactions in a single source of reliable data. As in the case of any other advanced technology, the development of the Blockchain is accompanied by agiotage. Many large financial institutions pay significant attention to the potential of the Blockchain, and some even invest in the innovative laboratories, start-ups or “sandboxes” (so-called test environments where the developers are given the opportunity to test the software in a safe environment). Nevertheless, despite the agiotage, the Blockchain also has sufficient support. Thus, at the International Economic Forum, which is held every year in Davos, it was noted in the report for the previous year (2016) that the Blockchain “justifies the agiotage” and “forms the basis for the infrastructure of financial services of the next generation”. Perhaps the most notable and well-known application of the distributed registry technology is the Bitcoin payment system, which was launched in 2009. The distributed Bitcoin database contains a report on each transaction using crypto currency, which market capitalization has grown dramatically in the recent months and reached almost $ 35 billion in May, 2017. Such growth shows the growing recognition of Bitcoin as a payment method, but at the same time it generates the gossip that it can be an artificial inflation of the economic growth. The use of distributed registry technology by the companies (on the example of the insurance services market) Taking into account the potential, that the distributed registry technology provides, it is not surprising that some companies have launched an initiative to estimate the value or develop jointly the programs. For example, in October 2016, Aegon, Allianz, Munich Re, Swiss Re and Zurich launched the Blockchain Initiative B3i which implies involving insurance companies in joining an industry group to investigate the potential of the distributed registry technology. The group agreed to launch a pilot project using anonymous information about transactions and anonymous quantitative data, in order to conduct research to confirm the mechanism of action of intergroup retrocession (reverse concessions). Another direction of the development is a broader interaction between the main players in the insurance services market and IT companies. Such a joint approach will allow to pursue not so much revolutionary but evolutionary development policy and testing in this sphere, which, according to the expectations, will lead to the standards of suitability for sharing. Certainly, there is a feeling of overwhelming excitement around the potential for a more efficient and safer business infrastructure for the activities of the companies. Nevertheless, despite the promises, at the moment the distributed registers are only a small part in the technological environment of the insurance. Very little investment has been promoted beyond the evidence of the concept, and there are serious questions relating to whether the registries will be able to cope with the volumes which are necessary for the operation of the modern insurance markets. Newbies fighting In the conditions of the constant development, the new market participants also strive to use the capabilities of cryptographic distributed registries. Among the most famous is the start-up Everledger, which uses the advanced technologies, including Blockchain, smart contracts and automated information analysis to help reduce fraud risks for banks, insurers and open markets; as well as the Plex.ai project is an automated telematics platform that uses the Blockchain technology, artificial intelligence and machine learning to provide insurance for the cars with autopilot. The InsurETH project allows you to purchase insurance against flight delays using the Ethereum smart contact system. The insurance payments are registered as a smart contract transaction, and the compensation is granted based on the provisions of the contract. Startups Startup projects have the opportunity to gain the access to the Blockchain technology for a relatively small fee, having built their solutions on such platforms as Ethereum, for example. Thus, the start-up Dynamis builds the contracts on the base of the Ethereum platform for the equal insurance contracts. This company also develops contracts for additional unemployment insurance, using the social network LinkedIn as a reputation system. The applicants for a new policy can use the data entered in LinkedIn to verify their identity and employment status, and the claimants can use their LinkedIn connections to validate that they are looking for work. In conclusion, it should be noted that technologies have changed an uncountable number of industries, and the next technological revolution seems to be aimed at digitizing all the industries, including the financial services industry. As a result, digital technologies are increasingly penetrating every stage of the financial services. So, right now, the transactions conducted using Blockchain technology, leave a trace on the web forever and give the opportunity to track every move. All the data can be copied, but there is no possibility to edit which minimizes the possibility of fraudulent schemes. Probably, in the near future most transactions will be conducted using Blockchain technology which will significantly reduce time costs and secure the contract parties from fraudulent schemes. In the meantime, we will be monitoring the development of the technology and monitoring the regulatory news of this relatively new but very actively developing technology.