Across all areas of financial services, Blockchain, a distributed ledger technology (DLT), is a subject of much debate and scrutiny. Recently, Xceedance CEO Arun Balakrishnan shared his thoughts on the potential of this technology in insurance markets.
In his commentary, titled ‘The Future of Blockchain–Is It Clouded for Insurance?’, Balakrishnan characterized the technology as a potential “next big thing” for insurers. But he also compares the current consternation about Blockchain/DLT to the advent of cloud computing and the reaction of the business ecosystem.
As Balakrishnan explains, “Blockchain is a technology for which insurance in particular should feel a strong kinship. It can be a robust solution for distributed data needs among multiple parties, maybe in a syndication- or consortium-driven business model.” Like many, Balakrishnan acknowledges the challenges and opportunities, but shares an optimistic view for how Blockchain can help to improve the market, indicating “today, new solutions utilizing DLT are expanding and accelerating, from on-demand insurance platforms to robust policy administration systems. The applications are literally limitless.”
Those benefits aside, Balakrishnan acknowledges the challenges Blockchain faces in permeating an industry that is historically resistant to change. He notes how insurers have so far viewed Blockchain through a financial filter, especially in light of its close association to Bitcoin. Nevertheless, Balakrishnan urges the insurer industry to look beyond this filter and recognize that “not all FinTech is InsurTech.” He hopes use of the DLT nomenclature “can help to clarify applications and begin to move the needle away from associations with FinTech.”
Another obstacle stalling wider adoption of Blockchain is a lack of understanding about how DLT works — including how much information is public, who owns the data or can access it, and how secure is the data? For a practical approach to overcoming such uncertainties, “the insurance industry can adopt this new technology by looking at use cases with trusted partners, or by investigating membership in B3i, as it looks at best practices and setting minimum standards for usage.”
As with any new technology, there are associated risks. Balakrishnan acknowledged them, adding “but DLT can be tested and explored in thoughtful and responsible ways.” He suggested that insurers can set up test environments, innovation labs or work with InsurTech start-ups and services partners able to segregate and help manage exploration and business value, perhaps initially outside the mission-critical operations of the enterprise.
The insurance industry is in a period of dramatic and exciting changes, with technological advancements such as Blockchain leading the way. Balakrishnan urges readers to view this dynamic period with optimism and pragmatic open-mindedness. “The ongoing lessons of technology adoption, including cloud, suggest that the combination of apprehension on one hand, and motivation for growth and cost efficiency on the other, often drive competitive advantage. Blockchain is likely on the same trajectory.”
Read the full commentary here.