With all the hype going on around blockchain, this report published by PwC provides a clear understanding of what blockchain is all about and how it can help industries
What is blockchain
The report defines Blockchain as a technology that allows data to be stored and exchanged on a peer-to-peer basis (In a P2P network, the “peers” are computer systems which are connected to each other via the Internet. Files can be shared directly between systems on the network without the need of a central server). Hence, working in a decentralized manner, blockchain removes the need for intermediaries or “trusted third parties”.
Smart Contract – the most important application of block chain
A smart contract is a contract between two or more parties that is executed automatically via its underlying blockchain, in response to certain events encoded within the contract. The report states that Smart contracts will especially be useful for parametric insurance where the insurance is linked to an underlying parameter such as rainfall, temperature or crop yield. When an event occurs that meets the predefined condition, all eligible insurance contracts are automatically executed.
Examples of blockchain benefits
Creates a global, tamper-proof registry to lower risk of fraud and theft of insured property
Example: Everledger (emerged from the start-up accelerator programme of Allianz France) has developed a certification system for luxury products using blockchain technology. It has created a global registry for precious stones with 40 characteristics for every stone (cut, colour, clarity, etc). A unique series number is created using these 40 components and laser-engraved on the stone, which is then added to the relevant blockchain. Once the database contains sufficient data (over 1 million diamonds had already been recorded at end-2016), It will be very difficult to sell the stones if they are not engraved with the serial number or if the sellers cannot provide encrypted proof that they own the rights to the precious stone.
Automation of tasks with zero added value
Example: The natural catastrophe insurance piloted by Allianz, since 2016, using smart contracts. The group’s settlement system simply requires 2 items of information: The event must have been declared a natural catastrophe and the location of the insured event must correspond to the region recorded as having suffered a natural catastrophe. The aim is to avoid a repeat of Storm Xynthia (Feb 2010), when most victims had lost their documents and had to wait over a year to receive the insurance payout.
Emergence of personalized solutions
Using blockchain technology, insurers will be able to more quickly develop personalised products and services and enhance their insurance offer.
Growth in emerging markets
Blockchain will enable firms to expand in Asia and Africa. Example: In many African countries, a substantial portion of the population does not have an official address which makes it hard to take out any home insurance. Thanks to blockchain technology, simple GPS coordinates written onto a server would serve as the basis for a tamper-proof land register that can be accessed by all users, thereby facilitating the arrangement of home insurance.
The foreseeable risks include competition from insurtechs (which have access to huge amounts of customer data and cutting-edge technologies), governance and maintenance challenges, an evolving legal environment and the current technical limitation in scaling up the blockchain technology.