Commercial Risk Europe: Blockchain provides new opportunities for insurance industry

11 April 2017

The opportunities and risks for engaging in blockchain and distributed ledger technology projects in the insurance sector have been highlighted in a new report.

Blockchain has been the buzzword in the fintech community for some time, however law firm Pinsent Masons and Applied Blockchain, which launched the research, are warning that while there is great potential for smart contracts to make inroads into insurance, many legal questions remain.

Next generation blockchain platforms allow applications or computer programmes to be built on the blockchain in exactly the same way as web applications are built on the internet today. This allows the blockchain to store and execute smart contracts.

Tim Roughton, partner at Pinsent Masons, said: “The concept of a ‘smart contract’ is an intriguing one for lawyers – at one end of the spectrum the discussion is about artificial intelligence replacing all of the aspects of drafting, while at the other, it could be used simply as a means of executing payment obligations and actions conditional on payment.

“But that said, smart contracts can offer real benefits to the insurance industry including simplification, automation, increased standardisation and electronic execution.”

The research found there are a number of features of the insurance sector that align to the features of blockchain:

• Insurance is heavily reliant on documentation, data analysis and databases – inefficient solutions are currently being used for recording and evidencing the relationship between parties in insurance contexts
• Insurance involves many parties/actors – distributed networks could make sense in this context
• Insurance is a heavily intermediated industry; intermediaries add cost and complexity – the removal of ‘central authority’ record keeper intermediaries has the potential to reduce cost (eg fees) and complexity (eg multiple reconciliations)
• Internet of things data and telematics data lend themselves to storage/tracking and encryption on a blockchain
• Customer onboarding issues remain a concern for insurers – authentication/verification through the blockchain can provide a way forward
• Reducing fraud is a key concern for insurers – the blockchain promises immutable records and tracking.

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