This document discusses how blockchain could transform the insurance industry by allowing for more efficient data sharing and automated processes. It describes the key activities of an insurance company and how each could be improved with blockchain. For example, blockchain could create a shared data registry so that customer and asset data only needs to be entered once rather than re-entered for each party. This would reduce errors and fraud. Smart contracts could also automate claims processing and payments. The document considers how new blockchain-based insurance models like peer-to-peer or parametric insurance could disrupt traditional insurers if they do not adapt.

1. IE Business School
Blockchain's
Impact on
Insurance
Economic Environment II
Prepared by: Melody Ucros, Michael Harper, Pier Luca Panza,
Eudore Pirmez, Constança Freire & Bruno CerVantes

2. The Industry Today
The worldwide commercial P&C insurance market is on track to be worth
US$895.1bn in gross written premiums by 2018.(1) Regardless of their size,
for years, the value chain of the Insurance Industry has remained
undisrupted. They have leveraged technologies like IOT, Big Data and AI to
improve their operations. Yet, it wasn’t until Blockchain that a technology
had the potential to completely redesign the way they work.
The Insurance Industry is designed for the customer to provide all the data
necessary and make payments, the broker to manage and validate the data,
and the carrier to assess the level of risk, prevent fraud and process claims.
Third parties are people who exchange data with the carrier regarding
customers, risks, claims or compliance. As a result, there is information
asymmetry between the consumer and the other parties.
The accurate assessment of risks and risk compensation are the top
priorities of all parties. The problem is that currently each party
individually analyzes, stores, and manages the data of each transaction
related to each customer. The data is soloed, formatted differently, and
housed under different databases. There is zero interoperability. This makes
the process time-consuming, inefficient, and more exposed to fraudulent
activity. Block chain would allow these processes to be automated, by
uniting all the players in one “chain” where the data of each transaction
can be synced, stored, distributed, and accessed on a continuous
basis. There will be transparency from the consumer to the carrier, the
carrier to third parties, and vice versa.
The Key Activities of an Insurance Company are:
Data Collection
Underwriting
Policy Issuance
Billing and Payments
Claims Management
Exchanges with third parties
02
(1)http://www.insurancebusinessmag.com/us/news/breaking-news/global-pandc-insurance-market-to-hit-us895bn-by-2018-27102.aspx

3. 03
role of blockchain
Static Registry: Customers
can register their personal data and
assets into a blockchain. It will
become an anonymous public
record. IOT and Big Data Solutions
can also contribute to registering
proprietary data and events into
the system. No more data entry,
printing, faxing, or emailing back
and forth for updated copies.
Identity Verifier: With blockchain, a
data can be validated and securely
distributed to parties who need to
participate in the decision-making
process. No more policy fraud.
Smart Contracts: Smart contracts
contain self-executing protocols
that enforce the performance of a
contract across all counterparties.
Claims data is shared across all
counterparties. Identities and
contract provisions are
immediately verified. Payments are
automatically made. (3)
Payment Infrastructure: Customers
could pay with cryptocurrencies, or
automatically validate transfers
from debit accounts.
First Movers
There are some companies who are
already leading the way into
changing the design of the
industry.
A great example is Allianz Group,
an insurance company offering
products to over 86 million
customers in more than 70
countries. They based their
strategy on being digital by
default, and striving for technical
excellence.(2) They have used
existing technologies to enhance
their customer’s journey and
process claims. For example,
customers can submit and track
claims online, while the internal
system automatically finds the best
solution and assigns the incident
to the corresponding
representative . This improvement
though doesn’t change the way
data is distributed and stored. It
just simply automates it.
This block chain driven
transformation is enabled by its
role as a static registry, identity
verifier, enabler of smart contracts,
and payment infrastructure.
(2) https://www.allianz.com/en/about_us/strategy_values/strategy/
(3) https://home.kpmg.com/xx/en/home/insights/2017/01/blockchain-accelerates-insurance-transformation-fs.html

4. 04
Therefore, based on these new
possibilities, the role of the
Insurance providers will no longer
be to assess risk. Instead, the new
role will be to facilitate risk
management solutions.The profit
for the insurer would come from
the increased customer volume and
the lower overhead costs of using
blockchain.
Future AssumptionsNew Reality
Blockchain will lead to new
InsurTech products like P2P
Insurance or Parametric Insurance.
These new products, if not
leveraged, could make insurance
providers completely obsolete.
P2P Insurance: Based on the
shared economy, policyholders can
pool themselves together for a
policy and underwriting is
consensus-based. If there is a
claim, they all contribute
financially to that claim. If there
are no claims, then premiums are
reduced. Blockchain technology
maintains the ledger of claims and
premiums paid. This will allow
customers to reduce premiums and
bypass fees to carriers and brokers.
Parametric Insurance: In this type
of insurance, customers purchase a
short-term contract for a specific
event. By doing so, they join a cash
pool related to the event, and if
something happens, everyone will
receive a percentage of the claim
automatically. It doesn’t
compensate for the actual loss, but
provides a cheap, fast and
convenient way for everyone to be
covered. (4)
This report will break-down each activity, the
current way it is designed, and how it expected to be
transformed by Blockchain. It will also explain how
the artificial forgiveness factor will play a role in the
transformation, and the human attributes that will
come to the forefront in the newly designed
institution. ittle bit of body text
Blockchain (BC) is able to handle
unlimited number of transactions.
GSN Consensus regarding Standards.
BC is wanted, trusted, and used by
all institutions and individuals.
It is impossible to hack BC Solutions.
IOT technology is a standard
requirement for every asset that
needs to be insured.
Every Organization has the resources
to create BC Solutions, and
individuals to use them.
Insurance Companies will disrupt
themselves, and customers won't
want to bypass them.
Assumptions for Transformation:
(4)https://www.romexsoft.com/blog/blockchain-in-insurance/

5. 05
Data Collection
Once Allianz is in contact with a
customer, directly or through a broker, a
set of questions and interviews must be
performed in order to assess the needs
and expectations of the customer. The
customer must provide information to
validate identity, ownership, and
conditions of the asset that needs to be
insured. This data is usually provided by
scanning paper documents of copies that
other parties had provided to the
customer at some point in time. Once
they have all the data, they need to
collect and analyze it to see how they
can achieve customer requirements. For
that, they create a Value Stream Map
(VSM). This process needs to be
performed with internal records, claims
representatives and personnel. All the
data needs to be shared across
departments in order to begin the risk
assessment (or underwriting process).
Present Future
Customer will grant permission
to the the insurance carrier to
access their identity, ownership
and asset data. This access will
reveal existing or past insurance
policies and claims associated
with property and/or insuree.
The insurer can trust the data,
since it has already been
validated by the third parties
when it was initially encrypted.
Everyone in the insurance
organization will automatically
have access as well. This shared-
interface between the customer,
carrier and third parties will
significantly reduce, or prevent,
fraud from all parties.
Sample TransformatioN
Based on activities specific to Allianz

6. 06
Underwriting
During this process, the risk and
potential exposure of the insured will be
analyzed. The company will evaluate the
scope of the coverage the applicant can
receive, as well as the premium he
needs to pay to receive it. Accurate
assessment is essential, since it is the
underwriters job to make sure the
company is protected from risks of
losses. They need to analyze criteria
such as: age; gender; weight and height;
personal and family health history;
purpose of insurance; occupation;
income; unhealthy habits (smoking;
drinking; etc); hobbies; travel habits and
more. If it’s for an asset, criteria such as
incorporation date, conditions, value and
location are taken into consideration.
This process is called KYC( Know Your
Customer).
Present Future
Through the use of the data
provided by IOT and AI, the
insurer will be able to
automatically match the
customer with a policy that best
matches its needs. The
blockchain allows all parties
involved in a claim to
simultaneously manage the
process. The price or premium-
to-be-paid will depend on the
“pool” where the customer
belongs, within a P2P solution
designed by the carrier. Rate is
based on the consensus that was
reached by all members in that
specific pool.
Insurance Company owns different P2P Solutions where
customers share the risk along with other people. Small %
of premium will go to Insurer, which will deal with
accidents and guarantee payouts.
The remaining % is for the group's "reserve".

7. 07
POLICY ISSUANCE
Once the risk is assessed, a contract is
shared with the broker, customer and
third parties in order to reach an
agreement. Once the agreement is
reached, both the insurer and the client
sign the document and everybody saves
a copy on their own system. Each party
now has the responsibility to abide by
the terms agreed upon on a timely and
ethical manner.
Present Future
Each individual of the pool will
have a smart contract that, based
on the predefined data of every
participant, will determine the
amount each party should
receive in case of an incidence.
Billing & Payment
On a monthly or period basis, the
company sends a payment reminder to
the customer. When a customer wants
to send a payment, it goes through a
bank that validates the currency
and the identity of the customer. Then,
the money is transferred from the
customer’s bank to the insurers’ bank. A
confirmation of payment is sent to all
parties involved. Depending on the
terms with third parties, some of that
money will have to be redistributed.
Present Future
With smart contracts, the
payment will not require
financial intermediaries and
would be sent automatically to
the insurance carrier. The
problem of exchange rate will
also be taken out. The payment
can be made in crypto currencies.
There will be an immutable and
transparent proof of payment.

8. 08
Claim Management
This process starts once the customer
registers the claim through their app.
They upload pictures of the incident,
information, and the compensation they
expect. The validity of the claim is
automatically processed through a
system, assigned, and then assessed by
either internal auditors or third-parties.
Data such as time of incidence, causes,
and costs is collected. If claim validated,
Allianz sends a refund check to the
customer, or to the third party that is
involved in the incident. If claim is
denied, notification is sent to the
customer.
Present Future
If the asset is automatically
feeding data into a blockchain,
the insurer can be granted access
to it and immediately assess the
situation. The notification to the
insurer can be automated, and
based on the terms of the smart
contract, money can be paid back
directly to the customer. The
subjective evaluation of this step
is entirely removed.
Exchanges with third parties
Allianz relies on third parties to provide
data regarding customers, risks, claims
or compliance. Brokers collect and
validate data. Every payment goes
through a bank. Every document must be
authenticated by original author. In
other cases, Allianz transfers the
financial pressure (through cat bonds or
swaps) to reinsurers. When regulators
ask for information, data must also be
transferred.
Present Future
Document Validation, Risk
Assessment and Payment is now
done automatically. Risks are
distributed through P2P solutions.
Overall, there will be no duplicate
information, faxing, printing,
filing, or emailing back and forth
regarding each individual
transaction. All parties involved
will simply be granted access to
the necessary blockchain.

9. 09
Implications
The Artificial Forgiveness Factor & Human Attributes
For the insurance industry, Blockchain translates into Billion of dollars saved. It
would eliminate policy fraud, claim fraud, problems with internal data quality,
subjective evaluations, and inadequate access to external information. It will make
the process fast, transparent and immutable. But, transformation always comes with
responsibility. A company entirely powered by Blockchain must first realize the
ethical and legal implications of using the technology .The cryptographic consensus
protocol ensures immutability and irreversibility of all transactions posted on the
ledger. Transactions can be reversed, but never forgotten. In order for the reversal of
any transaction, two participating parties must agree to reverse it, yet the reversal
transaction will still be permanent.
The new reality is that history will follow people and institutions forever. Because of
this shift, the level of accuracy and accountability within the organization is
essential for a business to withstand the test of time. The new business model will
require Insurance Companies, like Allianz, to set very clear standards related to what
customer data should be considered (and the time-frame), the data needed to
evaluate risk, the level of accuracy required by IOT sensors, and the specific
variables associated with each payout. There can be no space for subjective
decisions, because the system will keep the company accountable to the consumer.
Blockchain allows for a superior level of trust between humans and institutions. It
will create the phenomenon of artificial forgiveness, where everyone has full access
to information and still chooses to “forgive” each other's actions when they are no
longer relevant in the present. For example, a car crash from when a customer was
15 shouldn’t affect their policy when they are 55. In the same way, a fraud
committed by an institution 5 years ago shouldn’t affect its ability to recruit new
customers now. As time moves on, people and institutions will have to learn how to
make decisions based on full knowledge of history, compared to now where people
simply "forget". They must stick to the belief that everyone deserves the opportunity
to redeem themselves.
Blockchain will give human attributes to institutions. It will put them at an equal
level as the consumers. The institution will now have to share the same level of
knowledge, empathy, intuition, vulnerability, and transparency as another human
being. This attributes will make companies more relatable, and the companies who
abstain from this transformation, risk becoming obsolete. This level of transparency
will become the new standard for the Insurance Industry.

10. 10
Limitations
Why Transformation is not immediate
Security
In terms of security, recent incidents have generated some doubts on blockchain
being actually bulletproof. As any other technology, it will be continuously exposed to
cyber attacks. Indeed, the privacy of data is one of its greatest concerns. As blockchain
operates under a network with an open source code, companies will always fear the
possibility of eventual leaks in the system that will expose the data to the public. If
Allianz suffered a cyber attack it could have catastrophic effects in the short and long
run on the business. It would damage its brand image and reputation in the market
and put at risk its ongoing operations.
Scalability
The presence of a diverse group of players in insurance industry implies a higher
volume of data, as the number of transactions is multiple. In order for blockchain to
assure the validation of data in time, it requires not only a bigger storage capacity as
well as a stronger computer power to process and validate each transaction. This
remains a barrier to scale the technology since a remarkable amount of new
infrastructure and improved computing power is required, meaning higher upfront
investment costs for Allianz to incur to assure its viability. Additionally, insurance is
subject to continuous changes in regulations in order to keep its integrity in the
market, resulting in an increase in costs due to constant updates necessary to be done
to the technology to adapt to new regulation. This combined with some cultural
resistance will ultimately slow down the adoption by insurance institutions, and
translate in reduced returns on the investment to Allianz.
Standardization
The Blockchain technology still lacks standardization patterns, which reduces the
level of reliability of the technology. Indeed, the demographic challenges of identity
proofing and authentication make standardization of credential issuance difficult.
Additionally, there is no legal framework to control liability at scale if something goes
wrong. Indeed, the technology will only be able to reach its full potential, if there will
be interoperability and data interchange among users, applications, and systems, that
reflect a consistent and compatible way to exchange data and transactions. Only then,
when standardization is globally settled in the technology it would be broadly
accepted in the insurance industry. In order to speed up the process, Allianz can
create partnerships with other insurance players or financial institutions to enforce
the transformation process.

11. 11
Additional sources
Blockchain Accelerates Insurance Transformation by KPMG
https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2017/01/blockchain-accelerates-
insurance-transformation-fs.pdf
Blockchain in Insurance: Applications and Pursuing a Path to Adoption by EY
http://www.ey.com/Publication/vwLUAssets/EY-blockhain-in-insurance/$FILE/EY-
blockhain-in-insurance.pdf
Blockchain in Insurance: Opportunity or Threat by Mckinsey & Company
http://www.mckinsey.com/industries/financial-services/our-insights/blockchain-in-
insurance-opportunity-or-threat
Blockchain in Insurance: Why Should You Care by Deloitte
https://www2.deloitte.com/ca/en/pages/financial-services/articles/blockchain-in-
insurance.html
EU Insurance Fraud Survey Results 2016 by Insurance Nexus
http://www.insurancenexus.com/fraud/insurance-fraud-survey-results-2016
Leveraging Blockchain to Transform Insurance Industry by Capgemini
https://www.capgemini.com/resource-file-
access/resource/pdf/leveraging_blockchain_to_transform_insurance_industry_2017_we
b.pdf