Study examines potential of blockchain in insurance industry

International law firm Pinsent Masons and Applied Blockchain, a blockchain solutions development company, have launched research highlighting the opportunities and risks for engaging in blockchain and distributed ledger technology projects in the insurance sector.

While there is great potential for blockchain-based smart contracts to make inroads into insurance, many legal questions remain, according to a press release.

Blockchain platforms allow applications or computer programs to be built on the blockchain just as web applications are built on the internet. This allows the blockchain to store and execute smart contracts.

"The concept of a 'smart contract' is an intriguing one for lawyers, Pinset Masons Partner Tim Roughton said in the release. "[S]mart contracts can offer real benefits to the insurance industry including simplification, automation, increased standardization and electronic execution."

A number of features of the insurance sector align with features of blockchain:

• insurance relies heavily on documentation, data analysis and databases — the industry currently is using inefficient solutions to record and evidence the relationship between parties;
• insurance involves many parties — distributed networks could make sense in this context;
• insurance is a heavily intermediated industry — the removal of a central record keeper has the potential to reduce cost and complexity;
• Internet of Things data and telematics data lend themselves to storage, tracking and encryption on a blockchain;
• customer onboarding issues remain a concern for insurers — authentication and verification through the blockchain can provide a way forward; and
• reducing fraud is a key concern for insurers — the blockchain promises immutable records and tracking.

"[Smart contracts] can encrypt and store data securely, restrict access to that data to only the desired parties and then be programmed to utilize the data within a self-executing logical workflow of operations between parties," Applied Blockchain Chief Marketing Officer Peter Bidewell said in the release. "Smart contracts translate business process into computational process, greatly improving operational efficiency."

Pinsent Masons and Applied Blockchain co-authored the research to examine in more detail the potential applications for blockchain in the insurance sector. The paper looks at a real-world example to illustrate the user journey for a blockchain marketplace application that connects customers and insurers for home insurance.

A full copy of the paper is availableonline.