State Farm, USAA complete blockchain platform for subrogation

USAA and State Farm have gone live with blockchain- based processing for all subrogation claims between the two insurers, and they’re hoping to onboard other carriers in the coming months.

State Farm first began exploring the potential for blockchain and subrogation in 2018. The partnership between the two companies, which together account for about 12% of the $620 billion U.S P&C market, kicked off in 2019. After development and testing, full automation was achieved in early December of 2020. The companies say they exchanged about 75,000 subrogation checks each year before the paperless process emerged.

While both USAA and State Farm work with the industry group Riskblock Alliance (formerly RiskBlock Alliance) on cross-carrier blockchain ideation, the subrogation pilot was a one-on-one effort with both companies looking for a solid use case on which to build further blockchain development efforts.

“With any new technology, we look for opportunities to build early wins and increase organizational appetite, and this is a great foundational step to put behind continued investment,” says Schuyler Schupbach, VP of P&C claims for State Farm.

“This is an example that has been talked about for many years,” adds Sean Burgess, chief claims officer for USAA. “Both our companies were willing and able to take action on it. It’s one of the first partnerships of its kind, and certainly only the beginning.”

Both Schupbach and Burgess emphasize that blockchain requires full buy-in and willingness to collaborate from all parties involved. Historically, insurance companies have played technology innovation close to the vest looking for market differentiation. But the executives hope that the efficiency gains from this initiative will speak for themselves as they look to bring more carriers into the fold and build a subrogation-processing platform that works across insurers.

“When you have two top carriers like this working together, you already have people reaching out,” Burgess continues. “There is joint IP, and as we grow we’re going to figure out a way to run this and work with it.”

Some insurance companies have experimented with spinning off technology innovations as products to license to their peers, but Schupbach is quick to note that monetization isn’t the goal for this platform. Rather, making the subrogation process cleaner benefits all carriers and their customers, and provides a success story for future collaboration in the future.

"We for many years have done a lot of cross-industry work in our fraud team, and we have strong partnerships there because it benefits the whole industry," he says. "So there are real-life, near-term examples to gain experience."

Blockchain technology uses cryptography such as mathematical algorithms and secret keys that encrypt data along with peer to-peer networking and data storage to manage transactions and store information. Subrogation is the process by which insurance companies determine payment responsibility in the event of a claim based on at-fault rules and agreements. USAA and State Farm say that this implementation does not exchange personal information of insureds.