During a presentation about the potential of blockchain to transform the insurance industry, Dr. Magdalena Ramada Sarasota, senior economist for Willis Towers Watson, raised some provocative questions about the future.
Speaking at the Casualty Actuarial Society’s spring meeting in May on the basics of distributed ledger technology, she explained that blockchain allows interactions “in a network of strangers—[with] people we don’t know, people we don’t trust, people that might have conflicts of interest, people who may be greedy and want to take advantage of us.”
“We are able to interact with them in a market, transacting value with no one overseeing that market,” she said.
In short, blockchain “is a sociological innovation,” she asserted. “It changes the way people…and firms organize themselves to interact in an ecosystem where Intermediation is not really necessary anymore.”
That has implications for insurers, she revealed in her follow-up TED Talk-styled questions:
“Given the way society is changing, given that we have IoT data, sharing economies, we have generations wanting to be on peer-to-peer networks and defining how they share as opposed to letting [insurers] mutualize risks, we need to ask ourselves: Where does this leave the insurance industry and the social value behind the industry?
“Will it leave us with pools of people that can’t get into those networks? Will it be too risky?”
During her presentation, she described a frequently cited example of “flight insurance on the blockchain”—the idea of travelers paying a premium to have self-executing contracts deliver claims payments when their flights are delayed.
“Right now, we’re going for the low-hanging fruit, which is about efficiency, no reconciliation, smart contracts and automation,” she continued. “But at the other end of the spectrum, we have the nirvana, and the most anarchic players investing in technology in blockchain right now to disrupt the insurance industry are thinking about P2P insurance—’Mutualization 101,’ going back 500 years and having networks of peers insuring themselves.”
In recent years, incumbent insurers weren’t initially all that concerned about the latest crop of P2P startups, she suggested. “If five or 10 people want to pull together money and insure their friends, there’s nothing we can do about it,” they might say.
But blockchain “can get that five or 10 to 200, 2,000 or two million. And networks of peers that don’t know each other, that don’t trust each other, that have conflicts of interest would be able to pool funds and regulate a market without an underwriter,” she said. “That has implications from a regulatory point of view and for us as an industry to ask ourselves what is our role in a world that may be disintermediated in that way.”
In the latest edition of Carrier Management, we asked industry executives from established P/C insurers and InsurTechs to weigh in with their visions of insurance’s Tomorrowland and their roles in a changing landscape. While a handful also mentioned blockchain, and several touched on potential disintermediation of underwriters and brokers, none ventured quite as far as Ramada with her back-to-the-future prediction. Fewer still allowed themselves to walk far onto the science fiction landscape of our cover, with only a brief mention of customers insuring robots, DNA and trips to outer space.
With our questions limiting the forecasts to the next decade, however, they focused in interesting ways on the benefits of corralling new sources of data, on emerging risks to insure, and the value of partnerships between technologists and underwriters.