In mid-November, I chaired the summit day of the Insurtech Rising conference in London. I opened the day with two opposing views: one arguing that blockchain is too complex to be implemented, and the other supporting the vision of blockchain dominating the world, and bitcoin destroying banks. Both views were received with distinct ‘smiles’, recognising that we are neither here nor there. This leaves us with the question of where we are regarding blockchain implementation, and how far we are from experiencing the promised benefits.
Repeating some basics at the conference was important, such as “bitcoin isn’t blockchain” in the same way that “email isn’t the internet”. The cryptocurrency application is an ‘asset’, and its performance doesn’t undermine the potentials of the blockchain platform.Bitcoin isn't blockchain in the same way that email isn't the internet Click To Tweet
Other than that, the summit day became a challenging session of discussion and debate around blockchain, rather than simply presentations talking about the benefits of the platform. My takeaways from these discussions were, if not more confusion, at least that it’s OK to have more questions than answers, as we’re still in an exploratory phase.
As with any new technological application, there’s always a bit of scepticism – by some, less by others – regarding practical implementation challenges, and blockchain is no different. What’s important to always bear in mind is that technology, as much as it can help, cannot take away the human aspect of risk. Take fraud, for example. It was strongly argued that, with blockchain, it will be much easier to detect and mitigate fraud risk. So, in the case of a driving licence, once the certification is in the blockchain, it will be easily shared and verified across parties without the need to submit documents from a state organisation again and again.
The above example demonstrates the benefits of information sharing within the distributed ledger environment – information that cannot be altered by anyone. However, what is not described is how the information will be loaded onto the blockchain, and what happens if a “corrupted official” loads a fake certification on the platform. Sure, full traceability is available, but if we perceive information on the blockchain as “unchallenged”, will we ever discover the fake certification?
Just to clarify, I do not imply that the technology cannot offer huge potentials for innovation and other efficiencies just because fraud can “break into” the platform (well, not on its own). We just need to be careful about how we perceive the benefits, and to what extent we can bestow unconditional trust on the platform vs the respective users.
Smart contracts and parametric insurance is another area promoted within the boundaries of blockchain, where, with the right controls and triggers across multiple parties, a client can experience automatic payout upon the occurrence of a triggering event, without the need for additional proof of the damage. There are three immediate questions arising from such an example:
- The ex-ante agreement can be ‘codified’ and verified, but how will we know if, for example, the precipitation at the agreed level has practically affected the specific farm under the policy? In such a case, are we entering into an ‘insurance’ agreement to cover actual damages or a derivative contract?
- A paper-based (non-smart) contract may contain agreement terms or other qualitative elements between parties that are still enforceable by law, but are not capable of being algorithmically determined. Can the law mandate an outcome that’s different to what the smart contract may have already executed? Is this process reversible, and what does it mean from a legal and an efficiency point of view?
- Liquidity considerations, in the case of catastrophic events. Would re-insurers also be fully onboard with the technology and linked to a ‘collective’ smart contract? If not, what controls do insurers need to put in place, and would that be against the promised benefits of the smart contract?
The above is just a sample of the challenges currently discussed around blockchain implementation. Others include data standardisation, data processing capacity, silo approach of testing, and so on. Solutions will be explored and most certainly be found. However, similar to the internet, it will probably take some time before we begin to see full-scale implementation and benefits across the value chain (though overall adoption timelines will be different).
During the early days of wide internet adoption (the late ’90s), people talked about the benefits and disruptive potential of email, the death of the intermediaries, and so on. No one forecast the birth of Uber and the disruption of the taxi industry.
Blockchain may be no different. As the platform is still in its infancy, we have yet to invent all the possible ways to use it, and have yet to foresee all the possible benefits the technology can offer. We definitely have a long way to go before we can celebrate disruption.
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