ITIJ 212, September 2018
The future is here, and it’s called blockchain, writes Ian Campos, Executive Vice-President within Capgemini’s Financial Services Global Business Unit
If you’re a frequent traveller like me, you’ve spent your fair share of time at the airport and have learned to cope with, if not expect, the inevitable flight delays or cancellations. This becomes more pronounced during the winter months when nature wreaks havoc on even the best planned trip.
Travel insurance that covers flight delays or cancellations can help offset some of the incurred costs, but you’ll still have to file a claim with the insurer to get compensated, a process that could take weeks. However, what if you purchased travel insurance with flight delay coverage that automatically compensated you within hours, when delays or cancellations happened, without ever having to file a claim?
Global insurer AXA and Swiss insurtech Etherisc have already made this a reality. They have released flight-delay insurance products (AXA’s Fizzy and Etherisc’s Flight Delay Dapp) based on blockchain technology for specific flight segments.
What is blockchain technology?
Blockchain emerged in 2009 in its best known manifestation, the Bitcoin digital currency system. Blockchain is a form of immutable digital recordkeeping that stores all transactions taking place across its network. The major element of blockchain is that the technology enables the creation of transactions that are impervious to fraud and establishes a shared truth and trust without the need for a centralised controlling party. As a result, blockchain lowers risk and allows for ‘peer-to-peer’ transactions, enabling independent parties to directly conduct business. In doing so, blockchain also transforms traditional labour-intensive processes into efficient, cost-effective ones.
What if you purchased travel insurance with flight delay coverage that automatically compensated you within hours, when delays or cancellations happened, without ever having to file a claim?
While blockchain technology adoption in the insurance industry is very much in its early stages, experts have identified several areas and use cases where they see blockchain benefiting customers and insurers alike, including those in the travel insurance industry.
A faster, seamless customer experience
With blockchain, customer information can be easily collected by and shared amongst all parties that need it. For example, updates to a customer’s personal identification, like a driver’s licence or passport, will reflect on the shared ledger to all participants in the blockchain ecosystem – travel insurer, airline agent, car rental agency, hospitals, law enforcement, government agencies, asset registries for lost/stolen/damaged goods, and so on. Consequently, blockchain can be leveraged by its participants across the travel insurance value chain to offer long-term strategic benefits in the form of reduced operational costs, reduced risks and increased automation of process, as well as secure and decentralised transactions, all leading to increased speed and improved customer satisfaction.
Customers will also be able to easily file claims and receive payments. Insurers are already testing blockchain-supported ‘parametric insurance’ products, where customers would instantly qualify for a claims settlement following a triggering covered event – such as a catastrophic natural event or flight delays/cancellations due to weather. In these cases, upon notification of loss, blockchain logic can use ‘smart contracts’, which are automated computer programs that execute the key terms of an insurance contract, to initiate the claim, sync all the relevant parties to service the claim, and then expedite the settlement. In conventional claims processing, it can take days to receive the payment, especially if you’re travelling internationally. With blockchain, claims can be settled in minutes, even if you’re country-hopping.
As briefly mentioned earlier, traditional insurers and insurtechs have already started to monetise these use cases for travel insurance. AXA launched Fizzy in September of 2017; this product leverages smart contracts and the Ethereum blockchain platform to automatically file and settle claims for travellers whose flights have been delayed by at least two hours. In this case, travellers who buy Fizzy ahead of time have all their personal and flight information stored in the blockchain. When the flight is delayed, the smart contract initiates the filing and processing of the claim. Settlement is usually sent to the traveller’s credit card by the time he/she lands at the destination.
Improving efficiency, lowering costs and preventing fraud
The security and speed of blockchain lends itself to creating smarter opportunities for insurers. By using one shared ledger that contains all the relevant information for a transaction, insurers can improve core processes across the insurance value chain, including underwriting and claims. For example, AIG partnered with IBM and Standard Chartered PLC to pilot the first multinational commercial policy using blockchain technology. This solution allowed all parties involved to streamline the management and placement of multiple insurance policies across geographies.
Additionally, with blockchain, manual errors made during data collection and entry for claims or underwriting can be bypassed. Claims fraud can also be significantly reduced or even eliminated; parties would easily be able to verify customers and keep track of records, making it hard to modify documents or file fraudulent claims. Increasing efficiency and decreasing claims fraud will lead to lower costs for carriers.
Insurers/cedents and reinsurers can also streamline all aspects of the reinsurance contract lifecycle using blockchain technology. To test this out, the Blockchain Insurance Industry Initiative (B3i), currently made up of a group of insurers and reinsurers including Allianz, XL Catlin, Zurich Insurance Group and Swiss Re, has created a catastrophe swap insurance smart contract called ‘Property Catastrophe XOL smart contract’, which is in beta phase and is expected to see production deployments during 2018. According to B3i, ‘the platform will enable B3i to provide secure, confidential and efficient transactions’ for all participants. The B3i blockchain application was created on the IBM Blockchain platform powered by Hyperledger Fabric.
Creating new business models, products and services
By decentralising transactions, blockchain allows peer-to-peer transactions that are faster and less expensive than traditional ones. Therefore, this could lead to more peer-to-peer insurance business models on blockchain. Additionally, the combination of smart contracts with blockchain can also lead to new products (like Fizzy or Flight Delay Dapp). Blockchain could also open up channels into new market segments and geographies. Lastly, cryptocurrency could become an easy, secure form of payment, for premiums or claims settlements.
blockchain transforms traditional labour-intensive processes into efficient, cost-effective ones
With blockchain still in the early stages of development, the sky is the limit of how and where it will impact the insurance value chain. While today’s blockchain-enabled platforms/products pertain to travel insurance (specifically flight delay insurance), time will tell how the technology could be used to streamline/enhance other types of travel insurance, such as emergency medical situations or lost/damaged baggage.
In the meantime, the insurance industry is leaping ahead to explore the potential of blockchain technology across insurance sectors. ■