Trust, It’s Verified
In November 2016, we introduced blockchain in Leader’s Edge, unsure of where it was headed or when it would take off. Since then, we’ve added to our blockchain dialogue in various columns and briefs. Now, we’re taking a deeper dive to see how groups of industry stakeholders are applying it to standard insurance processes.—Editor
Anyone who has ever been in an automobile accident is familiar with the back-and-forth interactions with the insurance agent and carrier. It’s a worrisome, frustrating and time-consuming process. Policyholders aren’t the only people aware of these miseries—so are brokers, carriers, reinsurers and other parties to an insurance contract.
In a world where transactions occur instantaneously, the business of insurance—sales, underwriting, distribution, claims and so on—remains unduly sluggish. That’s about to change for industry players and their customers, thanks to the convergence of three technologies: blockchain, artificial intelligence and predictive data analytics.
Four consortia have been created to leverage blockchain technology for the purpose of sharing policyholder data and other insurance-specific information. When people think of blockchain technology, they typically consider its use in the development of crypto-currencies such as bitcoin. While true, this is only a small piece of the value the underlying blockchain and distributed-ledger technologies will provide for the insurance industry.
Blockchain is a live network of distributed ledgers used to record and verify transactions. A ledger is distributed to participants or members in a transaction network, each having the ability to store a copy of the ledger on a computer called a node. The members don’t need to trust each other to know that the ledger is accurate. That is because transactions are validated prior to inclusion on the blockchain, are unable to be changed after they are posted, and are highly secure because the distributed, immutable nature of the network makes it very difficult to attack.
Among the most promising blockchain consortia in the insurance industry is RiskBlock Alliance, a not-for-profit consortium of 27 insurers, brokerages, reinsurers and third-party industry participants collaborating to make the repetitive, manual process of insurance more efficient. Its goal is to develop a blockchain-enabled platform in the cloud to gather, store and automatically exchange a wide variety of information from insurance brokerages, carriers and third parties to create an insurance ecosystem, allowing for more cost-effective insurance processes to the ultimate benefit of policyholders.
The alliance is the brainchild of The Institutes, the insurance industry’s venerable professional education organization. It is owned by alliance members and administered by The Institutes, with assistance from a roster of well known partners like Accenture and Deloitte.
“This is an industry-driven effort—our members decide what is being built,” says Peter Miller, president and CEO of The Institutes. “For several years running, we’ve seen AI, blockchain and other technologies come on-stream, all of them proclaimed as the industry’s savior. Separately, they provided some value, but now we are at an inflection point where their convergence puts us at a watershed moment. What we’re doing has the potential to transform the industry.”
The Institutes is seizing the moment, retaining a veritable “Who’s Who” of consulting and technology partners—Deloitte, Accenture, IBM, EY, Amazon Web Services and Capgemini—to create the RiskBlock technology platform called Canopy. With help from these partners, the 27 (and counting) members of the alliance are collaborating on more than two dozen use cases involving different aspects of the insurance transaction.
“If you think about the various processes that occur in insurance, they are all part of a supply chain,” says Bennett Neale, an enterprise architecture consultant at Farmers Insurance, an alliance member. “Each use case, like proof of insurance and first notice of loss, represents a link in this supply chain. Proof of insurance, for instance, leads into the first notice of loss, which leads into subrogation (another use case). The data related to these processes is not shared at present. Each carrier does their own thing, resulting in tremendous inefficiencies and costs.”
Other alliance members agree. “All too often, we in the insurance industry go off and do our own thing,” says Mike Annison, head of global operations for Marsh’s claims practice. “As a result, we’re plagued with multiple processes that don’t align with a common agenda. You’ve got all this data that sits with the broker and all this data that sits with the carriers, but none of it syncs up on behalf of the client.”
Synchronizing the disparate data is the blockchain. As a secure, decentralized way to register and store digital data online, the technology presents a way for industry participants, as well as third parties like state motor vehicle departments, weather stations, auto repair shops, utilities and the ever-expanding array of internet-connected sensors in the internet of things, to automatically process insurance payments and transactions through prearranged “smart contracts.”
Miller provided the following example. “Suppose I have a water sensor in my basement,” he says. “On the blockchain is a rule that says if the internet-enabled sensor measuring moisture reaches a certain threshold, all the water will be shut off in my house. Otherwise, a pipe may burst. The sensor instantly sends this information to Canopy. A smart contract is automatically executed to signal the utility to turn off the water, since I may not be home to do it myself. Another smart contract automatically contacts a plumber to check the situation.”
What might have resulted in a substantial property loss for the policyholder and its insurer has now been avoided. “In my example, no longer is insurance purely a risk-financing activity for brokers and insurers,” Miller says. “It’s risk mitigation at its best.”
Under the Canopy
Three other industry-driven blockchain initiatives also are simultaneously under way—B3i, R3/ACORD, and Hashed Health, the latter involving health insurance. Each are engaged in proofs of concept. Taken as a whole, these efforts indicate that the outmoded processes inherent in insurance transactions will change dramatically in the years ahead.
This is certainly the expectation of Christopher McDaniel, the former lead of Deloitte’s insurance blockchain practice whom Miller recruited as RiskBlock’s president. “I’m the one driving this crazy bus,” McDaniel says. “Originally, I got involved with The Institutes in doing the strategy engagement on the platform. The value proposition was so good I threw my hat in the ring. It’s much better to be a driver than a consultant.”
McDaniel brings a varied career to the task, including stints as a chief information officer and chief operating officer in both the insurance and insurance technology industries. He believes what The Institutes is piloting will result in an insurance ecosystem—a holistic community of interacting parties—as opposed to today’s disconnected processes and dissimilar data.
“From the beginning, The Institutes wanted to build the world’s first true enterprise blockchain framework,” McDaniel says. “The goal was to create a reusable insurance ecosystem that could support multiple applications, such as proof of insurance, first notice of loss, subrogation, and so on,” he says. “We think the Canopy framework will become the ubiquitous source of insurance information over the next few years. And we can see even more creative use cases emerging in the future that are not possible in today’s disparate data environment.”
The first use case to commence, conclude and go into production is proof of insurance. (See Sidebar: Proof of Value.) Alliance members collaborating in building out a digital application to verify evidence of policyholder insurance include Nationwide, Chubb, Marsh and Farmers Insurance. Although the app is now available for use by members, these businesses continue to meet and discuss other possibilities to enhance the process.
Nationwide was one of the first insurers to join the alliance. “Early on, it was decided that proof of insurance would be the initial use case, as it involves the relatively straightforward exchange of insurer data by two policyholders in an automobile accident,” says Seth Flory, Nationwide’s vice president of IT strategy and technology innovation.
This process is paper-based today. The objective was to create a digital application on Canopy that member insurers would provide to their respective policyholders.
“Using their respective Canopy applications on their smart phones, each party to a vehicle accident would generate a QR code that the other party would scan for insurance verification purposes,” Flory explains. “This information is simultaneously captured in the blockchain, triggering the next link in the insurance value chain—first notice of loss. We wanted to make this as digital and frictionless as we could.”
Alliance members and their automobile insurance policyholders can now use the proof of insurance application, which recently became available in Version 1.0 of Canopy. Carriers are expected to rebrand the application with the names of their respective claims systems.
Three additional digital applications will be provided to members once Version 2.0 of Canopy becomes available in the third quarter of this year. The apps address first notice of loss, parametric insurance (the use of weather-related data in establishing coverage and loss) and subrogation (the financial adjustment of the net payment of a claim between two insurers). (See Sidebar: Three for the Money)
Nearly 20 other use cases are in the works and will be part of Version 3.0. All the use cases (and future ones) are predicated upon enhancing the efficiency of processes for alliance members, thereby lowering their transaction costs for the benefit of policyholders.
Down the line, McDaniel sees Canopy as a trusted platform for insurers and brokerages to develop new insurance coverages and bespoke products. “Right now, 80% of the use-case work is focused on efficiency and 20% on new-product development,” he says. “In the next several years, as more data enters the platform from the industry, third parties and especially the IoT, this percentage ratio will reverse.”
There is also a level of data ownership that still exists in Canopy. “Only the members will be able to use the applications that eventually reside on Canopy, which is a private-permission blockchain,” Miller notes.
And if member Marsh were to want to look at specific data owned by member CNA Insurance for a particular purpose and period of time, the brokerage would request permission, which CNA could allow or disallow. “Each member would receive a notification to accept or deny another member’s request for information,” Miller explains.
Three for the Money
Digital applications for three traditional insurance processes will become available to member carriers of RiskBlock Alliance in the third quarter of 2018—first notice of loss, subrogation and parametric insurance.
As with the first production application on proof of insurance that became available in April, several insurers and brokerages are collaborating in their development. Farmers Insurance, Liberty Mutual and Marsh are among the members of the alliance engaged in developing the first notice of loss application.
Agents and/or carriers typically receive a text, email or phone call from a policyholder indicating who has been in a car accident. The other policyholder does the same thing. This triggers the first notice of loss—the initial report that some sort of loss, theft or damage has occurred, the first step in the claims process.
What occurs next, says Mike Annison, head of global operations for the claims practice at Marsh, is a case study in inefficiency. “Each carrier contacts the other carrier to exchange information related to the accident, resulting in a back-and-forth process that consumes inordinate time and effort,” Annison says.
Since data on each policyholder is already in the blockchain, the two carriers don’t need to formally exchange their data. “Multiple parties eliminate handoffs,” Annison says.
In a commercial lines insurance context, today’s processes for reporting a first notice of loss slow down the flow of information. “An example is a broker that is not notified at the time of a claim because the insured has excess layers of exposure protection across different insurers,” says Matt Lehman, a managing director in the insurance practice of Accenture, a RiskBlock partner. “By sharing information in the blockchain, all parties to an insurance policy are notified simultaneously of the loss.”
With this first step in the claims process now completed, the next one—subrogation, the financial squaring of the net payment of a claim between two insurers—can occur. Marsh is involved in a RiskBlock use case addressing subrogation with Farmers Insurance, Liberty Mutual and other partners.
“With subrogation, carriers are focused on the net settlement of the claims payment, as it may involve some money coming from one insurer and some money coming from the other,” explains Bennett Neale, an enterprise architecture consultant at Farmers Insurance, a RiskBlock Alliance member. “Today, all these details are negotiated between the carriers over the phone and through emails, and a manual check is cut or a wire transfer made to make up the difference. This eats up a lot of time.”
Since the data on the claim are now in the blockchain via the first notice of loss application, much of the information needed to negotiate the ultimate settlement is already there, reducing the interactive interactions between the carriers. “In cases where both parties quickly agree to the settlement, a payment can be made in real-time funds from one carrier to the other on the platform, or an IOU form of payment could be executed,” Neale says. “More protracted cases would proceed on to arbitration, as they do today.”
The third application in development is parametric insurance, in which payment of a claim is tied to a particular weather-related metric. An example is an outdoor concert that has to be canceled because of rain. An insurance policy can be structured to cover the lost ticket income if rainfall exceeds a particular threshold, such as 10 inches of rain.
Another example is crop insurance that hinges on other parametric triggers like rainfall, temperatures or sunshine. Information provided by third-party organizations like the National Weather Service can be made available to alliance members on the Canopy platform. Additionally, data from internet-enabled sensors measuring rainfall, temperature, humidity and other meteorological conditions also can flow to the platform.
“The value of parametric within the blockchain is that it allows a variety of parametric sources to be aggregated into one source of truth for claims purposes,” says Christopher McDaniel, president of RiskBlock Alliance. “Say you have multiple sources providing flood-level information for a given area. By aggregating and creating one source of truth on the blockchain, there is now a single trusted source that multiple claims processes can rely upon.”
Laying Down Arms
What’s interesting (if not revolutionary) about this industry-driven effort is that the alliance members compete against each other in the real world but are putting that aside in this collaboration.
During World War II, Boeing, Grumman, McDonnell and other competing aircraft manufacturers put aside their competition and joined forces to make planes for the war effort. While this initiative doesn’t carry the same historical heft, there is a sense of that sort of collaboration for the mutual benefit of alliance members and that of policyholders. For example, Farmers Insurance and USAA, two personal lines insurers in intense competition, are collaborating to develop a digital application in the first notice of loss use case.
Most alliance members are involved in more than one use case. Marsh, for example, is engaged in four: first notice of loss, proof of insurance, parametric insurance and subrogation. Many members were already working on internal blockchain initiatives when The Institutes knocked on the door.
“We’d been discussing blockchain opportunities and had the technological capabilities to build something on our own,” says Flory, from Nationwide. “We were investigating the various insurance consortia formed to leverage blockchain technology and discovered a lot of alignment in the industry around what The Institutes was looking to do.”
This alignment, he says, is needed for a blockchain platform to succeed. “The nature of the technology requires developing a network of participants that trust each other,” Flory explains. “The Institutes’ reputation made the decision very straightforward. Ultimately, we felt the alliance was the fastest path to market to deliver the value the industry was after.”
Ted Epps, leader of Deloitte Consulting’s insurance blockchain practice, agrees that the strategic value of RiskBlock is its creation of a network connecting diverse insurance industry stakeholders and third parties. “This is a fairly universal consortium of members launching a broad range of use cases that will culminate in actual production applications,” he says.
In good part, the speed of development of applications is attributable to the sophisticated expertise of The Institutes’ partners. Deloitte is the primary strategic partner and Accenture the primary technology partner, with other partners engaged in mainly security and applications development. Nevertheless, all the partnering firms are working together to develop the Canopy platform, the various use cases and the digital applications. “It’s an all-hands-on-deck approach to partnership,” Miller says.
In making the decision to partner with The Institutes, Deloitte and Accenture pointed to its sterling reputation. “If we were going to collaborate with one of the consortia developing an insurance blockchain, it had to be at the center of things,” says Deloitte’s Epps. “Since blockchain technology is all about trust—different entities sharing data in a network—it was critical for us to have major industry players involved. The Institutes’ reputation guaranteed that would happen. That said, I don’t see the other blockchain initiatives as competitors but as complements.”
RiskBlock Use Cases
Four use cases demonstrating the value of exchanging data in a blockchain platform are under way at RiskBlock Alliance, with one (proof of insurance) already completed as a digital application for use by alliance members. This fall, the other three use cases will similarly result in a digital application.
This is just the beginning. Future use cases in sight by the alliance, based on member brainstorming sessions this year, are listed below in no priority order.
- Certificates of Insurance
- Commercial Trucking Fleet Identification
- Surety Bonds
- Multiple Payees
- Real-Time Regulatory Monitoring
- Tokenization of Titles, Deeds and Liens
- Digital Inspections of Physical Assets
- Internet of Things
- Agent and Broker Licensing
- Policy Cancellation and Non-payment
- Fraud Register
- Commercial Liability
- Foreign Sovereign Identification Linked to Insurance
- Technical Accounting
- Use of Existing Data for Smart Contracts
- Plugging in Data from Third Parties, e.g. Government Agencies
- Life Insurance Valuation
Only the Beginning
RiskBlock began its work in earnest in 2017, creating the strategy and business model for the Canopy platform. An early goal was to make the platform “blockchain agnostic,” meaning it could run on all three available blockchain technologies—Ethereum, Corda and Hyperledger Fabric, as well as newer distributed-ledger technologies coming down the pike.
Another goal was to create an indeterminate number of digital applications addressing all insurance-related processes. Consequently, the use cases extend beyond personal lines and commercial lines property and casualty insurance to include life insurance, annuities and reinsurance. “Unlike other consortia, we’re not involved in proofs of concept or science experiments,” McDaniel says. “We’re developing real production applications that members can use as soon as they’re up and running.”
Yet another objective was for Canopy to be global, ultimately used by the insurance industries within Asia Pacific, Europe and Canada. A year or two from now, McDaniel predicts as many as 50 applications will be ready for alliance members’ use on the Canopy platform.
“Through our partnerships with Deloitte, Accenture, IBM and Capgemini, we’ve set up a virtual software factory to build as many as 20 apps per year both offshore and onshore,” he says. “As soon as a use case is completed, we’re able to scale very quickly.”
Not surprisingly, RiskBlock Alliance will be a growing, living ecosystem for some time. Matt Lehman, a managing director in Accenture’s insurance practice, says the firm’s involvement is expected to be long term. “Chris McDaniel is doing an unbelievable job generating interest in the industry in developing a wide-ranging set of use cases,” Lehman says. “The Institutes has a comprehensive vision and an endless amount of insurance processes to improve.”
Ultimately, the platform will be “all things insurtech” for the global insurance industry, McDaniel says, with data flowing into Canopy from countless sources outside the insurance industry, such as the IoT. “The combination of the IoT and blockchain technology, in addition to the use of predictive analytics and AI, will transform the insurance industry, creating new business models and revenue streams,” he projects. “Canopy will be all that is needed in the future for carriers and brokers to do what is best for their customers.”
If McDaniel is right, this future cannot come too soon for insurance-buying businesses and consumers and the industry as a whole. Time will tell.
Proof of Value
In the formative stages of RiskBlock Alliance, The Institutes discussed the importance of aligning a handful of insurer and brokerage members behind the development of a specific digital application for use on the Canopy platform. Proof of insurance perfectly fit the bill, given its relative simplicity.
At present, when two people are in an accident, the social compact is to exchange each other’s insurance information. Each driver typically photographs the other person’s proof of insurance and then presents this information to his insurance agent or carrier in preparation for the next stage in the insurance claims process—first notice of loss.
“We felt it would be a great test for us to undertake, as it isn’t difficult from a technical perspective,” says Seth Flory, vice president of IT strategy and technology innovation at Nationwide Insurance, which co-led the proof of concept initiative with Farmers Insurance. “There was much efficiency to be gained by having a digital alternative on the blockchain. Both insurance companies are alerted of the incident, triggering the first notice of loss.”
Instead of having each party to the car accident email a photo of the other party’s proof of insurance to their insurers, they generate a QR code on Canopy that provides proof of their insurance, which the other party scans. “This is real phone-to-phone connectivity and data exchange,” Flory says. “And it takes anxiety out of the process.”
Asked what he meant, Flory says one never knows if the other person’s paper-based proof of insurance is the real thing. “There’s a lot of emotion produced in the aftermath of an accident,” he adds. “Perhaps someone is hurt. Maybe the person is at fault. The car is damaged, and it might be the first time this has happened.”
Aside from the value to policyholders, carriers benefit by improving back-office efficiencies, says Vishal Garg, senior enterprise data architect at Farmers Insurance. “By putting this on the Canopy platform, the typical back-and-forth emails and phone calls that occur between carriers to verify the policyholders’ proof of insurance is eliminated,” Garg explains. “It’s typically a five- to 10-minute phone call just to get basic data. Now that information is right there in the blockchain.”
Down the line, Flory can see other value accruing to the proof of insurance application. “What happens when law enforcement pulls over a car today for some infraction—the police officer asks for evidence of insurance, which is typically stored in the dashboard,” he says. “The driver now reaches into the glove compartment, creating a moment of anxiety for both parties, particularly if the incident occurs on a dark night. By syncing up the law enforcement community on the Canopy, they can immediately have proof of insurance when they run the person’s license plate.”