You may have heard the terms “blockchain” or “Bitcoin” used in tech circles over the past few years. These concepts, along with powerful use cases, are changing how we think about currency, transactions and contracts. In the process, they’re also changing how we think about the insurance industry.
These changes will have an impact on insurance carriers and agents, as well as how insurance is bought and sold. That means understanding blockchain and Bitcoin is important if you’re looking to win in the modern insurance industry. This post has you covered. It provides definitions of blockchain and Bitcoin, then breaks down why this information is important to insurance industry professionals.
What Is Blockchain? What Is Bitcoin?
In their book Blockchain Revolution, Don and Alex Tapscott explain that blockchain is “the ingeniously simple, revolutionary protocol that allows transactions to be simultaneously anonymous and secure by maintaining a tamperproof public ledger of value.”
The blockchain is designed to store transaction records (“blocks”) in multiple places, linked to one another (hence the “chain” part of the name) and transparent to any user who wishes to view them. Importantly, this record cannot be changed, so anyone can see a common and accurate list of historical transactions.
Bitcoin is a type of digital currency that uses blockchain technology. It’s not the only one that uses blockchain, but is one of the more popular options on the market. Although bitcoin is the most popular cryptocurrency supported by blockchain technology, other digital currencies—such as ether and litecoin—use blockchain technology as well.
All bitcoin transactions are documented in a decentralized public ledger that can’t be altered. In theory, this is a good thing because it creates trust among all parties of the transaction and provides a clear trail of purchase that prevents fraudulent transactions.
This is one way in which blockchain can potentially transform transactions. But keep in mind that blockchain does not have to be currency related.
Implications of Blockchain and Bitcoin for the Insurance Industry
Blockchain applications like cryptocurency, smart contracts and decentralized models for insurance will change how insurance is distributed. And when you change how insurance is distributed, you dramatically alter how existing players make money and challenge the status quo.
Insurance companies could use the blockchain to create a distributed ledger that fosters transparency, effectively tracks claims and transaction history, and provides visibility into the legitimacy of a claim. Smart contracts built on the blockchain can counteract fraudulent claims by recording transaction history on the public network, which would reject multiple claims for the same event. This could save the industry billions and open up huge opportunities to create massive amounts of value for consumers.
Cryptocurriencies can create trust between insurers and their customers could create trust. For instance, INGUARD was the first insurance company to accept bitcoin payments. We did this because it was the right thing to do for our tech-savvy customers—an attitude all too scarce in the insurance industry today.
Consider: forty percent of insurance premiums turn over annually—and two-thirds of consumers would buy insurance online if they could. (And even then, they’re barely satisfied with insurer websites.) Consumers don’t trust their insurers to put their best interests at heart or transact in a fair, equal way.
Bitcoin and blockchain technology, in our opinion, are tools that have the potential to not only digitally protect consumers, but also restore trust that their needs are being met. Technology adoption in the insurance industry should always create more value for consumers. It should remove friction from the buying process and enable a better user experience. And its effectiveness should be measured by customer satisfaction, not how much PR or marketing copy a new system generates.
That doesn’t always happen. But with the advantages blockchain technology provides, that could start to change. And that will be progress indeed.
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