Avoid a Stumbling Block – Compliance Considerations for Blockchain Technology in Insurance

blockchain technology

It has become increasingly clear that the underlying technology of cryptocurrencies, namely Blockchain, has some powerful applications that will pioneer new ways of working in many industries, and financial services is no exception.

The attraction of Blockchain is that a transaction can be completed more quickly and more securely than current traditional systems. It has significant disruptive appeal and the potential to cut out intermediaries and costs, although the full potential has yet to be realised.

There is much to be said about financial services and the impact of Blockchain, and how this technology could potentially unleash itself on the South African insurance industry that has in many ways been immune to significant disruption, is a place to focus.

Despite the rise of online brokers, most consumers still call their insurance broker by phone to purchase new policies, which in turn are processed in a paper chase and in many instances, a digitally unsecured environment. This scenario is changing and the rise of the millennials as a significant marketing group will no doubt see a further lurch away from physical intermediaries into the online space.

To further narrow the field of observation, we are going to look more specifically at the compliance side of Blockchain for insurance. On the assumption that the eventual adoption of Blockchain by the larger insurance companies is not a question of if, but rather when, more specifically linked to the regulatory status of this technology, which on a sidebar is currently being reviewed by both a regulatory and industry task force grouping, we switch to the humble compliance officer who will likewise have to grapple with this technology.  In the same way that insurance brokers who have been used to dealing with paper contracts will find their times changed; the compliance officer who has been ticking paper boxes will see a seismic shift in the landscape, which will require a potentially altered set of skills.

A primary area of risk and compliance upside relates to the potential of Blockchain to improve fraud detection and increase risk prevention primarily by moving insurance claims and policies onto a secure ledger basis. As such, Blockchain can help eliminate the common sources of fraud and mis-selling in the insurance industry. Compliance is looking to ensure that the risks to a firm are minimised by an adherence to both principles and rules laid down by the firm and/or the Regulator. Blockchain and equivalent technology offers the ability to hardcode processes and to insert smart documents/smart contracts into the insurance process, which allow for a far more secure and potentially error-free interaction with the policyholder.

The combination of Big Data and Blockchain has real potential to make significant changes and bring material efficiency to the monitoring regime of the compliance officer, who will be able to cast a net far wider than has previously been the case simply due to the ability of a machine to do more.

It’s prudent to grasp the fact that technology is inevitably disrupting industries and I would encourage compliance officers to stay up to speed with Blockchain and proactively position themselves, so that when this technology inevitably hits their firm, they are able to advise business proactively, rather than retrospectively.

By Richard Rattue, MD of Compli-Serve SA