IBM
Building Trust in Insurance through Blockchain

When it comes to business agreements among multiple parties in the insurance space, there are a lot of moving parts involved, which is a recipe of friction, all by its own. One solution that the industry has agreed upon that can reduce or even mitigate this friction is the blockchain technology. By using this underlying technology, insurers can permit, validate, and trust each other, which ultimately sans the friction. One such instance came up recently, where Marsh, ACORD, and ISN came together and developed a commercial digital proof of insurance with a goal of adding speed, trust, and protection. At the helm of it all was the IBM Blockchain technology. The problem to be solved here was simple and yet complicated to be taken care of. The currency of the certificate of insurance and the ability to hire clients to trust the contractor’s insurance certificate is valid and legitimate, and this was snowballing into a massive headache. The result was a loss of revenue for the contractor, project delays to the clients because of the inability to verify, and increased administrative costs for Marsh because of labour required for verification. By facilitating transactions in real time, IBM Blockchain’s distributed ledgers technology generated a digitally signed, provable, and permanent record. After the insurer records the proof of insurance once, at policy bind time, the blockchain ledger replicates it across the business network simultaneously, resulting in no more mismatches, data gaps, or delays. With IBM Blockchain, AIG and Standard Chartered converted multiple policies into “smart contracts” giving a single, consolidated view of policy data and documentation in real time. The solution allows visibility into coverage and premium payments, delivering automated notifications to network participants following payment events.

By providing appropriate permissions, the system ensures that verification can be checked by any authorized party in the network. Contractors can check that their insurance is valid, ISN is assured that contractor insurance certificates are current— and more importantly—legitimate. The parties verifying the certificate of insurance have confidence that the insurer actually issued the certificate. They know it has not been tampered with because the insurer digitally signed the certificate when committing it to the distributed ledger. In short, blockchain heightens visibility and trust to expedite smooth transactions. IBM Blockchain can simplify and secure multi-party operations at the heart of the insurance industry. Whether it is interacting with customers or dealing with other parties, IBM Blockchain can reduce the challenges presented by multiple parties keeping their own records. IBM’s chairman, president and CEO, Ginni Rometty notes, “Transparency that blockchain provided helps to create a system of trust between all parties involved and this element will become even more important in the future for all businesses.”

The IBM Blockchain Platform

Technological disruption has come to insurance—and the smart risk management strategy is to embrace it.

IBM Blockchain is helping the insurance industry radically transform operations with faster verifiable data exchanges, visibility for all parties, and transactions underpinned with pervasive security and trust. IBM offers deep expertise in blockchain and insurance, advising clients on how to use this technology to re-shape the industry. And we are making significant contributions to The Linux Foundation’s open source Hyperledger technology, on which the IBM Blockchain Platform is built.

"Blockchain technologies can support emerging business models where firms share policy risk by working with other insurers"

The IBM Blockchain Platform builds on top of key open-source and openly-governed technologies resulting in no vendor lock-in. Utilizing the modularity, performance, privacy, and scalability of Hyperledger Fabric, the IBM Blockchain Platform provides the necessary components for developing and operating enterprise blockchain solutions. Figure 1 outlines the end to end architecture of the IBM Blockchain Platform. This captures the experience from hundreds of client engagements to provide a production-ready platform for enterprise blockchain networks. The core open source component of the IBM Blockchain Platform is Hyperledger Fabric which provides core features to address specific needs of a permissioned blockchain network with organizational membership from businesses large and small. Hyperledger Fabric is built with modularity throughout the architecture to allow a variety of implementations on cryptography, identity, consensus protocols, smart contract languages, and other aspects to be easily interchangeable based on the needs of the consortium. Hyperledger Fabric provides a strong foundation for building decentralized business networks without having to integrate disparate solutions.

Governance and Operation

Perhaps the most important feature of decentralized business networks is clear and effective governance definitions, models, and tools. The IBM Blockchain Platform provides key features and dashboards to ensure networks are created with a well-defined model and are governed based on consensus protocols. Initiating and governing a blockchain network across a group of members, once it is operational, can take significant amounts of coordination, time, and effort. The ability to properly govern a blockchain network is often overlooked and underestimated; however, the IBM Blockchain Platform was built with this in mind, enabling users to easily and seamlessly govern and operate their network.

Proper governance ultimately ensures the network is in compliance, removes uncertainty and risk of your business obligations (embodied within smart contracts), ensures privacy and confidentiality of different classes of transactions (embodied in channels), and affords a vetting process to introduce new members.

The Use Cases for Insurance

The IBM Blockchain Platform, built around Hyperledger Fabric, offers an array of capabilities that expand and enhance the value of Fabric. It allows members to model, create, and operate networks with the performance and security necessary for a multitude of use cases in the insurance industry.

As transactions occur, insurers can rely on blockchain’s distributed ledger technology to update and validate information against other records in the network; reduce management costs for policies, claims, and relationships; streamline operations; and enhance customer satisfaction. Companies can also capture opportunities and revenue through new business models or new insurance products. IBM’s transparent blockchain solution allows multiple companies to collaboratively assemble relevant records to streamline claims recovery. Its shared ledger capabilities can help insurers agree on claims, build trust that evidence is being shared, and improve the overall customer experience. It can also be a vital link across a vast ecosystem of third-party administrators and service provider networks.

Its shared ledger transparency can help employers reduce errors resulting in improved claims processing, better provider management, and lower operational expense. Further, IBM Blockchain helps ensure contract certainty and improve risk-handling capabilities—from managing contracts among reinsurers to maintaining shared accounts and managing claims payments. With transparency across the reinsurance value chain, blockchain can eliminate the need for participating companies to regularly reconcile their reinsurance accounts. “Blockchain can help streamline operations, reduce costs, and enhance customer service. At the same time, it can open the way for new business opportunities like expansion into specialized areas such as parametric insurance and event insurance,” states Ginni. “Blockchain technologies can also support emerging business models where firms share policy risk by working with other insurers.”

Revolutionizing Insurance through Blockchain

With blockchain still in the early stages of development, the sky is the limit of how and where it will impact the insurance value chain. While today’s blockchain-enabled platforms and products pertain to travel insurance (specifically flight delay insurance), time will tell how the technology could be used to streamline and enhance other types of travel insurance, such as emergency medical situations or lost and damaged baggage. IBM seems to be far ahead of the curve when it comes to leveraging blockchain in the insurance industry.

The past year has seen an incredible amount of blockchain innovation from a diverse range of organizations. This innovation has been fostered by open-source organizations bringing together institutions and developers to make blockchain ready for the enterprise. The IBM Blockchain Platform represents the next step in this innovation by enabling production networks to be developed and operated through an easy to use interface built on an enterprise-ready protocol.