Blockchain technology may offer insurance companies the security that they have only dreamed about. The technology’s security components enable users to quickly identify whether a stream of data can be “trusted” for accuracy or not. In their article “Blockchain: An insurance focus,” Milliman’s Michael Henk and Robert Bell explain the basics of the technology. They also explore the benefits and limitations that blockchain could have on insurers.
Here’s an excerpt:
Blockchain technology also has the potential to limit fraudulent claims. False billings and tampered documents are less likely to “fall through the cracks” if the data is decentralized and immutable, which will reduce the amount of erroneous claims payments. Utilizing this technology will enable insurers to lower their loss adjustment expenses and pass on that savings to consumers in the form of lower rates. Furthermore, if this technology becomes widely used, it can help mitigate identity theft and other cyber liability losses.
Identity theft is the fraudulent acquisition and use of a person’s private identifying information. Usually this is done in order for the perpetrator to realize a financial gain. Because the data is encrypted at the financial transaction level, the technology minimizes the amount of identifying information available in the blockchain, thus minimizing the risk of identity theft.
The encryption protocol utilized by the blockchain technology has the capability to limit cyber liability as well. Cyber liability is the risk that personally identifiable information will be compromised by a third party storing an individual’s data. Current practice is to store this data in a central location with software to protect against hacking. With this technology, it enables data to be run and stored based on the current blockchain without unencrypting the underlying data because the chain itself can be independently verified through separate nodes….
…As with any emerging technology, these potential benefits do not come about without a few potential limitations, in addition to the security concerns discussed above. The most problematic of the limitations is scalability. In order for the insurance industry to utilize blockchain technology, it would take a remarkable amount of infrastructure.9 Currently, blockchain technology is limited by the amount of computing power available. In order for data to be decentralized, each node must be able to process the requisite data for each transaction for a growing number of participants. While smaller blockchains are currently successful with a limited number of participants, the insurance industry has a much larger population of participants that will need to have their data validated in a timely manner. This will mean not only more storage space, but also enough computing power to quickly be able to validate each new transaction or data point.