Blockchain – the technology behind the cryptocurrency bitcoin – is likely to disrupt the insurance industry in the same way it has banking and trading services. Could it also be the answer to insuring the sharing economy?
What is blockchain?
At its most simplistic, blockchain is an incredibly innovative form of record-keeping for the digital age. It is a distributed ledger of data that is maintained, updated and secured by an open network of computers. There is no central administrator so the system cannot be hacked. At regular intervals all transfers are verified, cleared, and stored as a ‘block’ of data stamped with a unique digital fingerprint (hash values), linked to the previous block in a ‘chain’.
Once data is added to the blockchain, it is virtually incorruptible, because any changes to a block require manipulating all those which came before it. Blockchains are publically viewable like a bulletin board. You can see what’s happening but you can’t put anything up or take it down without a private key or secret code.
Blockchain for insurers
In July 2016, global consulting firm McKinsey & Company identified three uses for blockchain in the insurance industry of the future:
- innovating products and services to enable growth;
- increasing effectiveness in fraud detection and pricing; and
- reducing administrative costs by automating key processes.
All three of these functions are crucial to the sharing economy. And since blockchain has the capacity to streamline the provision of individualised insurance policies and the claims handling process, it can solve some of the challenges of insuring the sharing economy.
A common challenge for traditional insurers is keeping track of policies and claims. This only gets trickier when applied to the sharing economy model, due to variables such as constantly shifting customers and service providers, each with a different identity and risk profile. But that’s where innovative firms like SafeShare Global – named Insurance Start-Up of the Year at the 2016 British Insurance Awards – are leading the way in protecting sharing economy platforms using blockchain.
In partnership with Vrumi, an app which connects homeowners with professionals seeking office space, SafeShare offers the first fully integrated insurance product, underwritten by Lloyd’s of London. The distributed ledger approach coordinates the provision of products between Vrumi users in near real-time and radically reduces the cost of this coordination.
Practically every day a bank, consultancy firm or tech company unveils a new blockchain technique. Competition is so fierce that Accenture and Goldman Sachs have sought to patent their techniques. Accenture has developed a “chameleon hash” method of editing a blockchain for its banking clients, while Goldman Sachs is seeking to protect a method of cutting out transaction costs in foreign exchange using blockchain.
In this environment, it will be interesting to watch how the wider insurance market utilises blockchain to solve the challenges of insuring the sharing economy.
For more on the sharing economy and how computer algorithms could one day put us all out of a job – check out our next blog post!