Last month in our innovation corner, we demystified and analysed the possible role of blockchain in the global (re)insurance industry – including how it might improve the security and centralisation of data and also potentially increase efficiency, lower costs, and improve transparency in even the most basic of insurance processes.
And while blockchain has been linked by association with bitcoin currency and the financial challenges that this raises, it embodies the basic principle of one confirmed version of the truth shared by many stakeholders that insurers could be looking at and focussing on: to see what tangible value they can gain from this extraordinary initiative – for their benefit as well as for their customers.
Perhaps looking at an organisation outside the insurance arena will help highlight the potential features and benefits that insurers – and indeed brokers – might be able to derive from adopting blockchain into their day-to-day business practises. Operating in 57 countries and reaching 10 million community impact beneficiaries, a unique and pioneering venture called BanQu is the first-ever non-crypto blockchain-based platform that enables transparency, traceability and sustainability for smallholder farmers, workers, miners, waste pickers, refugees and those living in extreme poverty.
In an illuminating and uplifting video, Co-Founder and CEO Ashish Gadnis explains their “first mile, last mile” belief whereby everybody in the supply chain has equal rights and recognition, and each participant in the delivery of the goods or service, however minimal or seemingly insignificant, has what they call an Economic Passport, an indelible and ongoing record of their contribution.
Nobody is suggesting that Insurers can develop and run a blockchain-as-a-service software platform solving possibly the toughest challenge on the planet - poverty alleviation – but there might be good reason for the insurance industry to look at the phenomenon in more detail and see how it could possibly apply it to their own business operations.
Right from the days when businessmen and entrepreneurs underwrote hull and cargo marine insurance policies in Edward Lloyd’s Coffee House, all insurers since those days have had the same aim – to understand, as far as possible, the risk they are covering and thus gauge the possibility of it having a claim – and what better way of achieving this is there than building up a continuous, transparent and auditable relationship with your insured?
Many readers will know the insurance industry is fond of its three letter anagrams and KYC (Know Your Customer) may be a benefit of utilising blockchain technology, enabling insurers to gather and store relevant data, on consumers for example. Blockchain has other potential, attractive features that could be harnessed – facilitating processes and reducing attritional costs which, although not a direct external benefit, may encourage carriers to reduce premiums in the future if they know they are still making the expected margins for the different classes of business they underwrite.
However, simply reducing the premiums to gain more business as a sole raison d’etre for adopting blockchain simply isn’t going to work in the environment of demanding consumer expectations we now live in.
Customer-centricity is absolutely critical to successful microinsurance – it cannot work unless the customer is at the heart of the product design, and understanding their risks, their livelihoods and the devices they typically have access to, is the only way to ensure affordability, true customer value and ultimately, build their trust and loyalty.
A recent opinion piece in Insurance Day by Ranvir Saggu of Blocksure entitled 'Blockchain will radically transform the microinsurance market' promotes the idea of value across the chain: “Microinsurance is delivered very much as a partnership and everyone in the chain needs to ‘win’ – the insured with a product that supports them, the insurer with profitability and distribution partners and tech providers delivering their margins.”
Alternative out-of-the-box partnerships to reach last-mile customers in remote, underserved areas have been common in the FMCG (fast-moving consumer goods) sector and others, but can the insurance industry learn from this and fathom a way that it can be applied for their business? Among several multinational businesses, Coca-Cola and Nestlé use blockchain to give them a clear, overall sustainability view, ensure that their supply chains are traceable and, at the same time, allows them to meet their ESG (environmental, social and governance) goals.
In essence, the distributed ledger principle behind blockchain has been identified by some as possibly the “core of insurance” – a route to determine transparent data bringing insurance back to its roots, to put the claimant back to the position they were in prior to their loss. Blockchain technology has the potential to simplify the claims process, alleviate high premiums, help insurers create niche coverage and, most importantly, benefit those who live in catastrophe-prone regions.
In simpler terms however, the insurance industry could do a lot worse than implement the ‘S’ in ESG to help some of society’s most vulnerable communities secure insurance cover, even the most basic kind.
In June 2020, the first ESG guide for the global insurance industry was developed by UN Environment Programme’s Principles for Sustainable Insurance Initiative entitled “Managing environmental, social and governance risks in non-life insurance business” and while blockchain wasn’t mentioned per se, it promoted a global framework for the insurance industry to address ESG risks and opportunities, strengthen the insurance industry’s contribution as risk managers, insurers and investors to building resilient, inclusive and sustainable communities and economies.
According to the Swiss Re Institute, extreme weather events in 2021 resulted in insured losses from natural catastrophes estimated at USD 105 billion, the fourth highest since 1970, and the overall economic loss from the same events was estimated at USD 250 billion – a significant global protection gap that has grown year-on-year.
The protection gap isn’t going away until last-mile customers are reached systematically. Embracing innovation, technology and some out-of-the-box thinking, while understanding emerging consumers’ needs and placing them at the centre could certainly go a long way, in ensuring the industry plays its part in addressing the risks of the most vulnerable and preventing their slip back into poverty.