Blockchain could be a game-changing technology for the insurance industry over the long term, with the potential to offer significant cost reductions, improved processing speed, and enhanced underwriting and pricing, while reducing fraud, according to Fitch Ratings.
The rating agency’s new report, Blockchain and Insurance: The Trust Machine, assessed the potential of distributed ledger technology in insurance. Although its long-term benefits could be game-changing, it remains unproven, and greater clarity around its advantages and risks will be revealed over the next three to five years.
Blockchain’s ability to digitally record and verify a wide range and volume of information relating to commercial transactions in a decentralised fashion promises greater transparency, security and information storage capacity.
Insurance is fertile ground for blockchain’s capabilities, according to Fitch’s report briefing.
“With the industry’s large number of complex transactions between multiple parties, blockchain could theoretically offer significant cost reductions, improved processing speed, and enhanced underwriting and pricing, while reducing fraud.”
“Efficiencies and cost reductions could be achieved by reducing the need for reconciliation and audits, automating certain processes and improving access to data.”
Estimates of the potential savings for the global (re)insurance industry from PwC and B3i, an insurance industry trade group focusing on blockchain, range from 15% to 30% of annual current expenses.
But the uncertainties around this technology remain pronounced, according to Fitch. They include when and how blockchain will be adopted, investment costs, and numerous legal, regulatory and security issues.
Fitch said that the ultimate viability of the technology for the insurance industry will depend on a select group of industry leaders adopting blockchain to gain competitive advantages.
The B3i initiative could be one such group. It has grown to 15 insurance industry firms, up from five when the technology first became available in 2016. The RiskBlock Alliance was also created as an insurance industry trade group to facilitate blockchain use in risk management.