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1st August 2021
First movers critical in driving adoption of smart contracts and blockchain in insurance
Commenting on EIOPA’s discussion paper on blockchain and smart contracts in insurance, Bhavesh Mulji, Principal Consultant and Somnath Ghosh, Partner at Capco said:
“Insurance is still in the early stages of leveraging blockchain and smart contracts. Despite the technology having been discussed in the market for a number of years and its promise of significant efficiency benefits, several challenges and questions exist around the technology relating to complexity, cyber risk, data protection and real-world cost benefits. In addition, evolving compliance and legal risks are key considerations when it comes to potential speed of adoption.
Automating large parts of claims management, facilitating onboarding and streamlining exchanges of information across general insurance, underwriting and reinsurance: these are areas where we expect to see the biggest uptake of blockchain and smart contracts in the immediate term to address recognized pain points relating to the inefficient exchange of information as well as fraud prevention. Most proof of concepts are centred around these on the basis of ease of implementation and the efficiencies that can be generated. However for more complex, speciality use cases, we are yet to see tangible progress.
As with any technology-led disruption, well-established first movers will play a key role in driving change and building trust to leverage smart contracts and blockchain. One thing is for sure: blockchain is driving innovation, with the majority of major insurers experimenting, testing and evaluating use cases for the technology and looking to better understand how it can create a competitive advantage. As more companies take the plunge, and viable use cases increase, we expect to see greater confidence in blockchain technology across the industry, which in turn will accelerate adoption.
Although the current regulatory and supervisory framework is considered to be largely fit for purpose in addressing emerging risks, specific issues will need to be carefully assessed based on the evolving use of technology and business use cases in the industry. Regulators are still building out their understanding of emerging risks and they can be managed through policies and processes. Firms are closely watching to see how this develops prior to heavily investing in blockchain, as they want greater clarity and assurance about what the regulatory, supervisory and legal landscapes will look like in the coming years. In this respect, EIOPA’s paper will be important in helping the industry gain a better collective understanding of the regulatory landscape and associated compliance requirements.
In addition, given that the real-world use of blockchain remains limited, customers are accordingly largely uneducated on its benefits and implications. Many will have reservations regarding transparency and data privacy, and the onus will be on insurers to deliver innovative products and solutions that demonstrate the value of blockchain and smart contracts, build trust and drive down consumer costs to further accelerate their adoption.”
Capco Trends(7 articles)
Blockchain Trends(170 mentions in Insurance Newslink)