“The insurance industry will be reshaped and reorganized due to blockchain for sure.”
Magdalena Ramada, senior economist at Willis Towers Watson’s Research and Innovation Centre, made this observation in a recent phone interview with
Insurance Business.
Recently, Marco Iansiti and Karim R. Lakhani wrote in
Harvard Business Review that “with blockchain, we can imagine a world in which contracts are embedded in digital code and stored in transparent, shared databases, where they are protected from deletion, tampering, and revision. In this world every agreement, every process, every task, and every payment would have a digital record and signature that could be identified, validated, stored, and shared. Intermediaries like lawyers, brokers, and bankers might no longer be necessary. Individuals, organizations, machines, and algorithms would freely transact and interact with one another with little friction. This is the immense potential of blockchain.”
With this in mind, Ramada observed that the applications that sit on top of the technology will create powerful efficiencies that will change the way insurance is structured and delivered.
Potentially, she said, the peer-to-peer model can help insurers and participants enable the market without the need for third party authorities or intermediaries. For instance, she said, blockchain makes it possible to underwrite risk without the need for traditional underwriters.
However, blockchain still faces roadblocks.
One obstacle in the US market, Ramada observed, is the regulatory and licensing issues that many insurtech companies face today. She explained that some regulators are resistant to current developments, which may make it difficult for players wanting to use the technology to deliver their products.
“Today, it’s very difficult to regulate them because they’re acting like banks and it’s like banking without capital,” she noted. Still, she said that “some start-ups have been good at connecting with regulators and working with them.”
Ramada further emphasized that regulation will need to evolve to accommodate the changes in the insurance industry as it adopts the technology. For instance, the possibility of enabling underwriting without an underwriter begs the question of accountability.
“If something goes wrong there’s no-one you can go after,” she pointed out. “It’s more of a social evolution than an industry evolution… Regulators need to be aware of that…Regulators really should have that long term perspective.”
Ramada added that the insurer’s role will have to be redefined as more players foray into insurance and more cost efficiencies are created to allow the industry to viably tap previously underserved markets.
“We’ll be able to assess risk in a better way, (and) we’ll be able to provide risk mitigation services in a better way,” she noted. “It will really make everything more transparent and more efficient and more robust.”
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