Other parts of this series:
- Blockchain start-ups are training their sights on the insurance industry
- Blockchain could force insurers to radically rethink their businesses
- Major insurers are starting to put blockchain to the test
- Blockchain gains support from technology heavyweights
- Blockchain still needs to clear some big hurdles
Blockchain technology has the potential to radically change how insurers conduct business and manage risk. Its capacity for multiple, highly secure, peer-to-peer transactions promises carriers considerable improvements in the efficiency of their operations and distribution networks. Furthermore, blockchain’s ability to enhance the verification, tracking and retrieval of digital assets and records, in industries such as healthcare, logistics and retailing, will require insurers to re-examine their management of risk.
Major blockchain applications include:
Crypto-currencies: Encrypted blockchain currencies such as Bitcoin, Litecoin and Namecoin are becoming an increasing popular form of commercial exchange. Thousands of retailers already accept payment in bitcoins and a variety of payment services, exchanges and digital wallets have been launched to accommodate these crypto-currencies.
Interbank money transfers and settlement. Blockchain’s ability to effect quick and secure financial transactions between banks is one of the technology’s main attractions. Seven major banks from Europe, the Middle East and Canada recently used a blockchain financial settlement solution developed by U.S. firm Ripple to transfer funds across international borders.
Direct exchange of digital assets. Blockchain has the potential to improve substantially the efficiency, security and risk management of interbank transactions. More than 40 banks recently participated in trials, co-ordinated by the U.S. firm R3, which enabled them to trade digital assets over a variety of distributed ledgers.
Smart contracts. Smart contracts are likely to be more secure and less expensive than traditional contracts because they use encrypted distributed ledgers to facilitate, verify or enforce agreements between multiple parties.
Distributed Autonomous Corporations: Automated digital organizations can operate without human managers. They function according to an incorruptible set of business rules that are encoded in publically auditable blockchain software that is distributed across the computers of the corporations’ shareholders. Bitshares, for example, is using blockchain technology to create transparent global automated corporations.
Digital signatures: Encoded information within a blockchain can be used to verify the transfer, receipt and authenticity of digital documents and instructions. Blocksign’s digital signature facility was one of the first commercial blockchain applications.
Identity management: The encryption of digital documents that verify the identity of individuals promises to reduce the risk of counterfeits and identity theft.
Proof of existence: Encrypted records of the submission of documents, rather than archives of the actual documents, provides independent and incorruptible evidence of their existence.
Voting: Blockchain technology can distribute voting rights, verify the authenticity of votes cast and consolidate voting results. The promise of blockchain is undeniable. The widespread application of this technology in the insurance industry, however, is still some way off. But when it happens, its effects will certainly be far-reaching.
In my next blog post I’ll discuss some of the insurers that have begun testing blockchain applications.