The application of blockchain technology is still in its early stages, but its potential transformational benefits for risk managers and insurers are beginning to filter through.
Blockchain is essentially a decentralised ledger, a digital record or database that can be updated and shared in real time by multiple parties. It sounds simple, but some believe this technology could be revolutionary, bringing efficiencies and innovation.
According to Jags Rao, a member of Swiss Re’s distributed ledger technology team, blockchain is set to be a “once in a generation” transformational technology.
Blockchain takes a “fundamentally different” approach to how we establish trust in relationships and transactions, explained Mr Rao. It uses a distributed ledger, cryptography and smart contracts to “build trust from within a system, rather than rely on a trusted intermediary”, he said.
The Swiss Re expert compared the future for blockchain to the development of the internet. The ability to build trust from within a system will open a raft of applications during the coming years, in much the same way the internet evolved to deliver the digital applications and services we see today, he predicted.
Mr Rao expects more Blockchain insurance and reinsurance applications to start appearing in the market from next year, with a wider adoption of the technology over three years. Five years down the line, Blockchain is likely to become part of daily life, Mr Rao predicted.
According to Nigel Brook, partner at international law firm Clyde & Co, there are many exciting opportunities to use blockchain for holding and transferring information and effecting contracts.
Blockchain applications are particularly promising for supply chain and logistics, where the movement of commodities, goods and components is currently opaque and inefficient.
Supply chains and logistics involve costly and time-consuming paperwork, administration and compliance. Blockchain could give information much more visibility and transparency, as well as speed up processes and remove cost.
According to Mr Brook, blockchain could be used in combination with the internet of things (IoT) to provide a secure environment for data exchange and automation of contracts.
Another benefit of blockchain is its ability to prove ownership of an asset and provenance, according to Mr Brook. A blockchain paper trail could help trace goods and ingredients within supply chains, as well as combat fraud and counterfeiting, he said.
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