Latest EY blockchain report: The impact of combining insurance industry with blockchain is huge (download the full text)

Baozou Commentary : As an important part of traditional finance, the insurance industry has encountered many problems in its development. Although the industry rarely applies new technologies, Ernst & Young, which serves such companies, has begun to pay attention to these issues. It has also made relevant research reports, in which it has also given different answers to how such industries will be combined with blockchain, and provided reasonable suggestions for the application of blockchain in the insurance industry in the future.

Author: Amber Dingding

The development of blockchain technology has also attracted the attention of many companies, including Ernst & Young, one of the world's four largest accounting firms. Blockchain technology will involve a wide range of fields. As a company that provides audit, tax, financial transaction and consulting services to many large companies around the world, the number of industries involved is very large, especially those that overlap with the fields involved in blockchain. As an important part of traditional finance, how insurance can be combined with blockchain has become a part of particular concern to both insiders and outsiders.

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Insurance, as an important part of traditional finance, is an important pillar of the traditional financial system and social security system. How will blockchain, as a peer-to-peer, decentralized distributed ledger technology, "collide" with insurance? At present, judging from the use and popularity of digital equipment in the insurance industry, there is a lot of room for improvement. In the future, how will the insurance industry fulfill its responsibilities to customers, markets and regulators, and what key issues will need to be considered? Blockchain technology may play its role in the overall innovation and risk management strategy, including network liability, big data and telematics concepts.

Blockchain will be integrated with the insurance industry in four aspects

As a decentralized, peer-to-peer distributed ledger technology, blockchain has attracted the attention of the banking industry due to its convenience and security. In fact, blockchain is a string of data blocks generated by cryptographic methods. For example, each data block contains information about a Bitcoin network transaction, which is used to verify the validity of its information (anti-counterfeiting) and generate the next block. The blockchain is public on the Internet and can be queried in each offline "package" data.

If you want to combine it with insurance, you may start from four aspects.

First, we start with the signing of an insurance policy between two parties. Assuming integration with blockchain, the transaction or collection of identities, confidential information and contracts is recorded in the blockchain ledger. When future payments are made, contracts are modified or claims are submitted, the integrity or authenticity of the transaction can be verified instantly, independent of the participants in the transaction. Similarly, for complex multi-party insurance (or reinsurance) ("re-use" in the case of aggregated data and risk transfer between participants in complex negotiations), there is only a single "view" of the source risk data.

However, as people's attention to privacy protection gradually increases, concerns about their personal privacy are particularly evident, especially when the basic content of any transaction is recorded in a centralized public ledger. Therefore, a mechanism is needed to ensure that transactions are recorded but the above content is not leaked. The technical design of the blockchain has evolved in a series of iterations through the use of hash functions and mathematical operations that can track transactions or obtain transaction summaries. The hash value (the result of applying the hash function) can be used specifically to identify data and can regenerate the data.

Secondly, if policy data or claims are entered into the blockchain. A hash value is generated for each entry or claim, which is then submitted to the blockchain infrastructure. The infrastructure aggregates the hash values ​​of all requests and submits a single aggregate hash value to the blockchain. In addition, if photos of the scene are used as evidence of the cause of a commercial fire, the blockchain ledger can be used to provide a chain of evidence for all evidence related to a single loss event. Also, in terms of refunding claims, each application for refund will be accompanied by a keyless signature, allowing third parties to use the blockchain as a reference when verifying the transaction characteristics (time, identity, integrity) of the data. Keyless signatures allow the individual characteristics and attributes of each transaction (including claims) to be verified without relying on trusted parties and human intervention. Moreover, the key cannot be revoked or revoked, and there is only a mathematical proof of the signing time, cause and integrity of the transaction. This allows anyone to prove and verify transactions and prevent data from being tampered with, helping to ensure that historical evidence of claims is preserved.

How big is the impact of blockchain on the insurance industry?

For the more conservative traditional insurance industry, insurance companies are slightly less enthusiastic about encouraging the adoption of disruptive technologies. The combination with blockchain aims to retain customers, optimize service pricing and profitability. "Being trusted by customers" is the core value advocated by many insurance companies, so large insurance companies have begun to work on the innovation of "blockchain + insurance". For example, Ping An of China has begun research on blockchain. The "trustless" system of blockchain (which pushes the ownership and management of identity management, data and processes to customers) may bring real long-term strategic benefits.

On the transaction side, access to secure, distributed transactions (with shared access to a ledger that has a secure audit trail) provides the foundation for improved non-repudiation, governance, fraud prevention, financial data and reporting.

In terms of risk control and capital management, accurate and timely notifications of changes can help change risk and capital management and adjust big data strategies. Big data provides basic information services in terms of information availability and security, covering all aspects of customer assets, priorities, preferences and third-party information.

On a technology level, insurers see opportunities in integrating with trusted third-party ecosystems to reduce costs across their global platforms, increase customer and market share, and build new value propositions.

At the market level, insurers are seeing opportunities in corporate governance through improved access to data, third-party controls and enhanced management of risks associated with their products and services, including recovery services and cyber insurance.

Strengthening trust is systemic. It requires multi-layered investments to accelerate customer information, payments, mobility, data, analytics and automation, all supported by a data chain strategy.

In the future, the use of blockchain distributed ledger technology can reduce the barriers faced by insurance companies and risk financing models when they are popularized. Whether these barriers are telematics, healthcare, insurance marketing or telecommunications, the blockchain may establish transparency and accountability that was previously impossible. The four opportunities for the insurance market include fraud identification and risk prevention, digital claims management, new distribution and disruption, and new product cyber liability insurance.