5 things you need to know about blockchain for insurance
The original goal of the first Bitcoin blockchain was to improve the efficiency, transparency and speed with which institutions could conduct financial transactions and trade information. That objective is still front and center today, which is why blockchain is being embraced by the insurance industry.
Here are five key insights into the ongoing impact of blockchain:
1. The importance of blockchain is clear. A public, private or consortium blockchain enables individuals to store and transmit information to each other in a manner that’s encrypted. It can be a great advantage in helping clients and customers make more informed choices. Today, the significant amounts of time that people spend reconciling and transferring data do not add value for their organizations or their customers, but with blockchain that manual reconciliation and transfer are no longer necessary.
2. Blockchain is already being put to work, with global impact. One high-profile example is Walmart, which has asked all its suppliers of leafy greens to use blockchain to link their products back to the farm where they were grown. J.P. Morgan, IBM, British Airways and Toyota are also using blockchain, with tremendous implications for those companies and anyone who does business with them.
Is blockchain already a part of everyday conversation at your organization? If not, you can expect it to be within the next two years. Those in management, financial or accounting roles will have to understand and be able to communicate about it.
3. Two Ts explain the value of Blockchain. The new technology’s transparency and traceability address a major pain point in insurance: knowing if information is accurate, up to date and available to all the parties involved. A real-time update of the common record is crucial to the insurance business. All parties must be informed and aware of their rights and obligations once a triggering event has occurred.
The ability to trace a triggering event to the processing and payment of a claim on a common blockchain platform that all the parties have access to is a game changer., That traceability can help offset the fraud, errors and other risks that end up costing insurance carriers — and all of us — money.
4. Blockchain’s use is being tested in the insurance industry. Organizations have launched pilot blockchain programs in a wide array of insurance areas, including property, maritime, property and casualty, auto and health insurance. The list of companies with projects is extensive.
This is to be expected, since the point of insurance is to insure clients against external risks while making sure that the variables that go into the pricing of insurance and payment of policies operate in an efficient manner. Doing so requires sharing information between organizations that may not operate on one common platform, and blockchain solves that problem.
5. There will be changes for both insurers and customers. Each side will have to be on the same page with how the platform is going to operate, who has access to it and what type of information will be stored. If your company is working with an insurer that is on a blockchain platform, your controls, procedures, workflows and access rights must be up to par with the platform’s requirements.
Information will have to be stored in a digital format, but many insurance and accounting organizations still use a lot of paper today. The benefits of blockchain won’t be realized if data can’t be uploaded to a digital platform. There will also have to be policies on how the platform updates procedures and on maintaining consistent controls.
The perfect arena for CPAs
CPAs gather information from internal and external sources and use it to develop insights that their organizations or clients can use in critical decision making. With that in mind, accounting, tax, audit and numerous other professional areas are ripe for using blockchain to augment current processes. It can help you become more efficient, productive and give better advice to clients and customers.
Right now, no organization or person has a monopoly on information in the blockchain space. This presents an opportunity for CPA firms that position themselves as trusted advisers in this fast-growing area. To learn more, turn to AICPA resources such as the Blockchain for Insurance learning guide, the comprehensive “Blockchain Fundamentals for Accounting and Finance Professionals Certificate” course and the primer “How will blockchain change accounting?”
Dr. Sean Stein Smith, Assistant Professor – Lehman College at City University of New York (CUNY). He served as a technical editor/presenter for AICPA & CIMA’s RPA courses as well as the Blockchain certificate program. He is the chair of the Accounting Working Group of the Wall Street Blockchain Alliance.
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