Insurance needs to wake up to blockchains!

In an interesting discussion that we were having with our banking client, their insurance department kept bragging about the state of the art technology that they were building. Head of Insurance was eager enough to call it InsurTech enabled and very sophisticated. However, surprisingly when I mentioned IoT and Blockchain and how it could impact the sector, the person drew a blank ( Well, to be fair, he did mention that he had heard it before, but isn’t that what you see when you are in-front of several peers)

I was curios to see how the sector in general thinks and this report from PWC does confirm to the bias that i had.

screenshot-from-2016-11-28-19-31-23
PWC Global Fintech Survey 2016

As you would see, Blockchain does find a mention even though it is a much much lower than what you would expect. Insurers, like banks, are intermediaries and, at first glance, there is great potential for insurers to use blockchain technology to streamline payments of premiums and claims.

Aso of today, Actuaries and underwriters are now heavily dependent on the data. This data can be brought to them from a lot of sensors now. For example in telematics, insurers are using data from sensors to price motor risk more accurately, reducing the premiums of young safe drivers, and this technology is spreading to other types of cover, such as home insurance.

Till date, Insurance sector, amongst other similar sectors is ridden by huge unaccountable losses in light of fraudulent claims.

As Deloitte mentioned,

In a typical motor insurance scam, for example, drivers deliberately stage or cause an accident or even pretend to have had an accident, and
claims are then made by the various criminals involved. These so-called ‘crash for cash’ scams cost the industry around £400 million a year. 4 Where claims are made against multiple policies held by different insurers, it becomes difficult to detect the fraud unless cross-industry data is shared.

We have been setting the stage a lot for blockchains but how does it help?

Now the way to get around this with blockchains is by building Smart Contracts. These contracts can manage claims in transparent and immutable manner. Both the contracts and claims would be the part of a blockchain. If there is one accident and the claim for that has already been raised then it cannot be claimed again because the chain would have a record of that. Again since this is a decentralised chain, nobody can just goto a central authority and make a change to the claim and re-trigger it. (Haven’t you heard of that friendly claims agent who tells you to file the claim and that he would take care of it or that friendly bank agent who assures that he has access to the main frames to fix your credit history?)

Smart contracts with IoT is a huge win for the insurance and the financial industry in general. With identity management being embedded in the smart contracts the situations for Crash for Cash would be long gone. Further this would be a blockchain which would be public (ideally) or private but shared within the insurance sector then all this information of a person who would jump from one insurance company to the next and not share all the information would be a distant past.

According to PWC,

Reinsurance expense ratios are typically 5%-10% of premiums. Our analysis of the potential for both more efficient data processing and reductions in claims leakage and fraud indicates that blockchain solutions could remove 15% to 25% of expenses, so delivering an industry-wide saving of $5-10 billion. And faster placement and settlement opens the way for a significant boost in client satisfaction and retention.

With blockchains, there would be a win in terms of processing, opportunities for new business lines and immense transparency which has been a thing of the past for now amongst insurance companies. With all companies sharing their information on the blockchain, it would be a different world in which legitimate insurance claims would help bring the cost of insurance down and add value to everyone.

If this sounds interesting then get in touch with us and we would show you how your company can win with blockchains.

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Insurance needs to wake up to blockchains!

Quick example of a block in a blockchain

Further to our earlier post, which describes the data structure of a block in the blockchain, here is a quick example of what does the block look like

 

screenshot-from-2016-11-28-18-09-25

Relating it back to the post, it contains the

  1. Size, Version, Bits and Height in the chain as to where it belongs
  2. Number of transactions
  3. Merkle root
  4. Timestamp
  5. Link to the previous block
  6. Mining Difficulty
  7. Nonce
  8. And a list of all the transactions in the block.

Again, each transaction has the following format

Screenshot from 2016-11-28 18-16-28.png

Again as per the details in the earlier post, amongst the technical information, it contains the size, mine time and the block that it is a part of , along with the details of the coinbase in input and output.

Quick example of a block in a blockchain

Are we really eliminating central authorities with blockchain?

There is a lot of promise around blockchains. While we at DeepChains do subscribe to the philosophy and would be eager to provide business solutions to meet the industry needs but there has been a lot of double talk, it seems with blockchains.

The premise of blockchain is the following

  • No central registration – No big papa.
  • Decentralized – there is no single point of failure.
  • Safe – Encrypted and secure.
  • Private – My data as an individual is not held by a central authority. I choose what to share
  • Secure – end-to-end encrypted communication routed over Tor.
  • Open – Open source code

However, for all the so-called currency exchanges, this does not seem to be the case. Let us understand the premise of Bitcoins philosophy first. If you look at the image below, we are trying to get rid of any central agencies,

screenshot-from-2016-11-27-13-37-34

We are trying to get rid of any paperwork that needs to be submitted to these central agencies which make me share more information than what i need to.

Screenshot from 2016-11-27 13-38-03.png

and I need to be working without any central control in a true P2P manner.

screenshot-from-2016-11-27-13-41-19

However, let us cut to the current state of things with any blockchain enabled exchange that we are talking about. The current set of exchanges work on the concept of centralisation. They would become the man in the middle instead. So now we take out the banks but we have these men in the middle which would peddle less money than the traditional banks but peddle nevertheless. They would keep your information and subver the ideal blockchain model.

Screenshot from 2016-11-27 14-56-32.png

Let us take the example of a leading Bitcoin exchange called Unocoin in India. It provides a valuable service for converting Bitcoins into currency of choice but it does charge a fee. It asks me to store by Bitcoins in a wallet that it gives me and also asks me to submit a lot of information about me including some of my key identities (which is probably required by the law of the land). Let us see how it defeats the purpose on the parameters that we discussed.

  • No central registration – It is Central
  • Decentralized – Single point of failure. If Unocoin is down, i cannot transact
  • Safe – Encrypted and secure. Probably true.
  • Private – My data is held in central repo. I cannot decide what i need to share and what not to share.
  • Secure – Yes
  • Open – No

So as we see it fails to deliver some of the credible requirements from the original philosophy. Also, since there are so many central exchanges present, it almost ends up being like banks competing with each other on their exchange rates and you have to do the homework to get to the right one. I have seen so many videos and tips on how to buy on one exchange and transfer to another and then sell it on another exchange so that you can get the best leeway.

So essentially, YOU (A) as a person cannot decide how much you would want to transfer to another person (B) exactly the way you would want to. You would have to go through an intermediary (central system) to make the transfer happen. Ideally, we would like to see  NO CENTRAL system and the money should just be transferred form computer to computer on a P2P network. Something like this

Screenshot from 2016-11-27 15-11-36.png

In support of this paradigm, Bitsquare seems to be working on this model with a software which works. This seems to gel well with the idea of actual decentralisation.

In the next few blogs, we would be looking at these differences in detail but for now a lot of new exchanges are spinning up which seem to be creating pseudo central agencies rather than decentralised ones.

Keep tuned.


References and image courtesy:-

[1] https://bitsquare.io/

[2]https://blockchainedu.org

 

 

Are we really eliminating central authorities with blockchain?

What would kill Uber, Airbnb, TripAdvisor in one go?

What do Uber, Airbnb, TripAdvisor, PayPal etc have in common. Right, they are super successful and highly valued and …. ?

Uber and Airbnb fall in the category of Shared Economy. Paypal has changed the way financial transactions are carried out and TripAdvisor makes the rating and booking of hotels and trips easier. So, what is the common theme? The common theme is that all of these are centralised, they control (we can debate this) what gets published and who gets the maximum attention (we can debate this as well). So say Airbnb decides tomorrow that person X in San Francisco should get better hits than person Y then they have the potential to do that. Again, I am not way suggesting that they are doing this but they do have the right (well, err ..?) and the potential because there are like a central authority now. For that matter, we have made them almost like banks, governments and visa.

Ok, and who can disrupt this business model. It is Blockchain.

So what is Block chain, as a starter, it is completely decentralised. It is not stored on any central location. It is distributed across volunteer machines in a true P2P fashion across the world. It is encrypted with public key and private key and is impossible to tamper with (well, until you implement it incorrectly, see DAO hack)

Let us see how it would work for say Uber. So now, instead of centralised Uber, we have an Uber in which all the people who want to drive  a car for living attach that meta with their profile in the Blockchain. So say there are 10,000 people in Toronto who register on the distributed block chain (remember no centralisation here) their intention to drive when hired. Now when a passenger wants a ride, there is a filter which finds the city and the driver on the basis of reputation on the Blockchain and gives us the result. Further, if along with driving I also put my intent to rent out my extra room on the block chain then if someone wants to book a room then they specify the filter in the same way on the blockchain and get back the listing of all the rooms that they would be interested in.

So once I use the blockchained car service or the room then I can leave a ranking of the service. With this data being IMMUTABLE, without any CENTRAL control and co-exists on several thousand computers across the globe in an encrypted format, there is NO WAY in which I could go and change the ranking. Some of the central aggregators would always face challenges for this. Blockchain on the other hand makes it virtually impossible ( in the absence of central control to get into frauds like this). Since the block chain is immutable for someone to go back and change anything, it would have to be done across thousands of machines and when other machines find a change in information on a set of machines which does not match them then they would start blacklisting those machines.

Uber, Airbnb and TripAdvisors are great central aggregators which help with automating workers on the periphery. What does that mean? It means that if you want to drive a car, you connect with Uber and it would automate your job of finding customers. Likewise for Airbnd and TripAdvisor. Whereas, Blockchain automates the centre of the ecosystem. Hence instead of putting a Cab driver out of job, it would put Uber and aggregators out of job since it would be connecting the consumer directly to the service provider.

Blockchain replaces this central system with a decentralized ledger of chained records. Each record is connected to the one before and the one after it, yielding a traceable history of every transaction. No record can be deleted and no existing records can be altered.

There are other instances where there is a direct attack on the central guardians of information or man-in-middle. Lloyd Marino suggested,

For instance, Mycelia, started by English singer-songwriter Imogen Heap, is developing a way to encode a blockchain contract into songs, so fans would pay the artist directly, without going through a record company. A blockchain e-reader could download ebooks directly from the authors, bypassing both publisher and bookstore, or even Amazon.

Hence, there is an amazing amount of interest and possibilities of what we can do and what we can achieve with Blockchain. Stay tuned!

What would kill Uber, Airbnb, TripAdvisor in one go?