A few years back I was in a meeting and a client asked – “What can I do with blockchain that I cannot achieve with APIs?”. And while he was the only one who bluntly asked the question, many others clearly think the same. We encounter this question all the time – still.
Of course – it is a valid question. I like comparing this to the question – “What can you do with technology now that we couldn’t do with technology years ago?”. And similarly to the blockchain/API question, the answer is not straightforward. While there is nothing particularly new – when we set our sights on the moon decades ago, we were able to get there (slide ruler and all). The sky truly was the limit, and it still is. Of course, it is better to rephrase the question – it is not about “what” you can achieve, but more about “how” can you achieve it.
In the broader technology question – with old and new technology we can land a space ship on the moon, but now we can probably handle similar communications with the space ship from mobile phones instead of needing a massive control center in Houston. We can probably reuse the same space ship if we decide to go to Mars. And, it wouldn’t/shouldn’t take a decade to build and test either. Lastly, when something does goes wrong, it probably is easier to fix. So – in other words with the current technology achieving something is going to be cheaper, faster, and arguably better than it was decades ago.
The question about why to use blockchain in insurance ecosystems has very similar answers. You can make reconciliation – for everyone in the value chain – a thing of the past. You can expand into markets that are requiring smaller bite-sized insurance. You can create a much more cohesive digital experience for your customers. You can tap into ecommerce ecosystems. Of course, with a lot of effort and coordination (a lot!), and a team of API-builders and maintenance people (remember the Houston command and control center?), you can achieve the same thing.
With blockchain technologies – this will be cheaper and faster to implement, and easier and cheaper to operate.
Insurance is a risk-adverse industry
Now – insurance is by nature an industry that calculates risk and calculating risk for a project that uses a technology that hasn’t been broadly used in the insurance industry is difficult. So, this requires executive boards to take a risk, which is difficult for many existing companies – even though intellectually most people get it. There are still only very few case studies in insurance and that is one of the reasons the industry is not widely adopting blockchain yet. This is not to say there aren’t any – but they are still limited or not widely publicized.
And, just like in any other industry, there is still an inherent distrust of other companies in the value chain. Examples can be found in things like giving real-time access to the reinsurer – what will the reinsurer do with that data? Or giving distributors access to the pricing engine – what are they going to do with that information?
In the insurance industry this may be exacerbated by an inherent distrust in the silos that companies operate in. Sales people don’t trust actuaries, actuaries don’t trust underwriters, call center staff don’t trust sales people, and so on. I am generalizing here – not all companies are like that – but the industry has in general been structured in silos and very few cross-silo initiatives are successful. Often because these silos don’t come together until the executive board, and in multinational insurers this often is a regional or global issue. Only strong executive commitment can overcome the barriers.
Insurance Ecosystems
The answer for insurance as for any other industry lies in building ecosystems. This is not a new concept. When I was a consultant in Andersen Consulting (yes – the predecessor of Accenture) we already talked about interconnected companies. And James Moore wrote about business ecosystems in 1993 in Harvard Business Review article, titled “Predators and Prey: A New Ecology of Competition”. This article shows evolutionary stages of ecosystems – most of which still holds true to this day.
The insurance industry is still grappling with the birth of ecosystems – insurance is frequently indicated as the least innovative industry – and are at risk of more advanced ecosystems in nearby industries (Grab, Alibaba, Tesla, Globe/Gcash, etc.) absorbing large portions of the industry. Regulators will likely stop the industry from being entirely disintermediated, but the disruption that precedes the intervention is something that individual insurance companies and brokers should be scared of.
Many successful companies have built and are thriving in highly developed ecosystems. Amazon, Grab, Apple, Alibaba, and many more, are clearly doing well. And all successful companies look at their industries as ecosystems – they co-create with their suppliers and/or customers, and take risks sharing ideas with companies that could potentially compete with them. This is of course, not always successful – but the risk and rewards (successes and failures) are well-documented; Blockbuster, Netflix, IBM, Apple, AOL, Philips, Amazon, Barnes & Noble, Alibaba, and the list goes on.
Conclusion
So – does your insurance company need blockchain? That depends on whether you want to be a leader in your ecosystem and start outperforming your peers. According to Accenture – leaders in technology using future systems are seeing more than 2X the revenue growth of laggards (read more here).
A lot has been written about blockchain in the insurance industry – including a whole series that can be found on Asia Insurance Review by the founders of Galileo Platforms (one can be found here). Many disagree on when and where the disruption will come from: new insurance companies like Root, Lemonade, or Singlife; spin-offs from forward-looking insurance companies like Bolttech (FWD), ecosystems from outside the industry like Tokopedia or DBS or Amazon, regulators in insurance or healthcare like in Singapore, or just smart insurance companies disrupting themselves. But all agree that it will happen…
Our recommendation is to try and beat others before they figure it out.
Be hungry, build your ecosystem and set the standard; expand into microinsurance and modular insurance with agile and personalized products; and chip away at the margins of existing type of products through a more cost-efficient blockchain-based platform that enables everyone to work from the same source-of-truth.
The topic is much bigger and we’ll write more about this – but for now, start taking one step at a time and you’ll find that it is possible to start small, spend little, and start getting ahead of the competition.
Author: Robert Kooij – Business Development Director Galileo Platforms
