By Staff Writer
Global insurance sector is increasingly adopting blockchain technology, which would bring significant benefits to both the insurers and the end consumers, says one of the blockchain’s leading proponents.
David Piesse, a member of the advisory board of Estonia-based enterprise blockchain firm Guardtime, says that the insurance industry is one of the prime targets for disruption because it is a laggard in digitisation and has a trust issue with customers.
It is also an industry that needs to share as well as protect the integrity of data and is also rules-driven, which is why, he believes the insurance sector lends itself perfectly to blockchain, smart contracts and artificial intelligence (AI).
However, some segments will see faster adoption than others.
The micro insurance sector is seen as one of the first use-cases for blockchain because many potential consumers do not have insurance and blockchain will enable low cost transactions.
“Blockchain technology provide triggers to pay claims automatically on simple products with built-in preconditions and thereby reducing the trust deficit,” he says.
Secondly, business-to-business blockchain, he believes, will be the next because it is rife with inefficiencies. The current business models have paper trails, multiple errors and omissions, counterfeit issues and fraud, and are prone to cyber risks.
“This is why we are seeing marine, energy and construction projects going into production with blockchain this year,” he says. “This ranges from critical infrastructure, cyber security to exchange of digital assets in supply chains.”
Healthcare insurance is also a popular blockchain application. While life insurance industry is a laggard in terms of adoption, consortiums are being formed in several countries such as Korea which could indicate more use-cases in the segment.
For the mainstream consumer market, he believes, the technically will typically come in the form of digital tokens that would work on top of the blockchain and exchange ledgers.
“That is just starting and will depend on the development of cryptocurrency in line with fiat currency equivalence,” he said.
On the whole, the tokenisation is the future, reckons Piesse, who was formerly the head of financial services for Asia Pacific for Sun Microsystems.
“Our lives are full of physical tokens – door keys, credit cards, air miles, supply chain dockets, passports and many more – the list is endless,” he says.
Blockchain will enable creation of a digital twin for all physical tokens which implies that many physical tokens will disappear.
Indeed, amongst his many hats include advisor to an insurance-based token, Utoken, which became one of the first start-ups from the insurance sector to be accepted to the UK Financial Conduct Authority’s (FCA) fintech regulatory sandbox.
For insurers, blockchain will help bring them closer to their consumers.
“Insurers will see reduced expenses and fraud and therefore better profitability but they need to get closer to customers at same time,” he says.
“Consumers will be able to put together insurance on demand to match their business,” he told Blockchain Asset Review. “Consumers are a huge beneficiary of blockchain.”
In terms of consumers, they will have more oversight in their insurance as it would enable them to control their own data in digital wallets and will be able to trade that data with peers.
In addition, blockchain will help address challenges with regards to privacy laws such as Global Data Protection Rule (GDPR), and cybersecurity.
Guardtime and KSI
Privacy and cybersecurity are indeed the foundation of Guardtime, which has now become one of the leading players in the enterprise blockchain sector.
The company has its origins in the defence industry as it was founded in 2007 in Estonia, following a state-sponsored cyber-attack on the country.
In 2008, this led to the development of Keyless Signature Infrastructure (KSI), Guardtime’s flagship product, which became a standard in defence and government after Estonia became the cybersecurity headquarter for NATO.
KSI is a cryptographic blockchain time stamp which proves the integrity of data, the provenance to enable society to see the truth about what happened to data, and it can be used as evidence in court for liability.
“It is not a cryptocurrency but a true detector of data tampering which can be used on any digital asset including cryptocurrency and can also address paper protection,” he said, adding that “keyless” is the future because there are no physical keys to hack.
Estonia and Blockchain
“Estonia is the poster child for government adoption of blockchain and an e-digital society,” Piesse said. By digitising the entire country, Estonia increased its GDP by 2%, by lowering digital fraud and improving operational efficiency.
Guardtime has proven wrong critics that had said that the KSI may not be scalable because Estonia is a small nation with a population of only 1.3 million, he said, adding that KSI scales to billion records per second.
Governments are the biggest potential adopters of blockchain. (Estonia, for instance, has 3000 government services linked to their ID card.)
Millions have applied for the country’s blockchain-based e-residency program whereby a proper background check anyone anywhere can be a digital citizen of Estonia.
Blockchain in Supply Chain
After ledgers and smart contracts emerged on the scene in 2015, Guardtime moved into other areas such as healthcare, supply chain, GDPR and insurance.
One of Guartime’s most well-known projects include EY/Maersk’s blockchain in the shipping industry platform, known as InsurWave, that earned significant media coverage as one of the first use cases of blockchain in the industry.
InsurWave, a first for commercial insurance blockchain deployment in production, is expected to attract many new partners, he says.
Blockchain helps the marine industry by removing the paper trail in the insurance process from shipping to delivery, whereby expenses can be reduced by as much as 50%.
With the help of blockchain, shipping firms can also make better decisions at sea in real time such as the best way of going through a war zone for an extra insurance cost or sailing around the war zone and taking the extra fuel hit.
“In summary, reduced expenses, better cybersecurity in parallel with operational efficiency,” he says.
Marine is not alone because similar problems exist in the aviation, construction, energy and manufacturing supply chain sectors, indicating that these sectors too could benefit from blockchain over time.
Challenges: Legacy Systems
He believes that it is time for a complete shift in way we look at the industry because many of the security systems no longer work in a huge cloud computing and digitized environment.
“It is good that Guardtime KSI and the real blockchain players are already quantum immune so the future proofing is in place now,” said Piesse, who was awarded Kenneth Black Jr Distinguished Service Award from the International Insurance Society in 2017.
He believes one of the biggest challenges facing mainstream adoption of blockchain is legacy systems and the provenance of legacy data.
“The interoperability of the old and the new and this will drive mainstream adoption of blockchain and the gradual phase out of legacy,” he says.
And the question lingers as to when would the mainstream adoption of the technology would occur.
“Given the problems faced by industry through digitisation, critical infrastructure and cyber-attack I feel that mainstream in the commercial insurance sector could be just 2 years away,” he said.
But it could take a bit longer in the personal consumer sector there because of other variables such as regulation, developments in cryptocurrency and digital identity developments as well as the level of consumer education.
“I would place mainstream adoption here at maybe five years but no crystal ball,” he says.
On the whole, despite the hype around blockchain, industry is suffering from a number of ailments including lack of standardization, production experience, privacy by design, amongst others.
And blockchain is not invincible because implemented without the right mix of infrastructure, it can fail like anything else, he warns.