Blockchain: Coming soon to an insurance regulator near you

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What do you get when you have a meeting with insurers, state regulators, a national industry association, a filing bureau, and a software provider? The answer is … a design session on using blockchain for regulatory reporting.

Can all of these parties agree? The design workshop at @AAIS on their OpenIDL demonstrated use of blockchain technology for more timely and reliable data call reporting. As blockchain advances, having regulators on board will be necessary. Building a solution which solves one of their big headaches is a great advance toward this goal.

“Regulators will Hug their Blockchains” is a blog I posted in 2016 (which seems like a lifetime ago now). I wouldn’t say regulators are hugging the technology yet, but they are warming to it.

For those who have never worked with the ax of data calls hanging over their head, these requests from state departments of insurance (DOIs) are both critical and costly. As an example, when a catastrophe is in view (such as an approaching hurricane), state regulators want to know what the loss potential is for the insurance companies serving consumers in their states. They issue a data call: a request for information related to policies in force in a specific geographic area.

As the technical lead of a legacy automobile system, I lived in fear of data calls. One could upset an entire month’s production plan. Extracting and formatting the data to meet the DOI needs took resources and time. Coordinating with our colleagues in underwriting and claims to interpret the request and ensure our compliance was a constant back and forth — all under time and resource pressure.

Data calls are no picnic for regulators, either. Imagine getting 30 different files from insurers and having to sift through and verify that what was asked for is there, in a usable format, etc. Responses frequently include more data than needed and, in a time of increasing sensitivity about personal data privacy, place a DOI in an uncomfortable position of having more than they should/want. Meanwhile, the governor is waiting for an answer…..

OpenIDL seeks to change much of the traditional dynamic. Those interested should visit their site to get a picture of their ambition and plans. As noted in previous Celent research, blockchain use fundamentally changes the way that different constituencies interact with one another. OpenIDL is a perfect case of this in action.

What was fascinating about the design workshop that I attended was how the different constituencies worked together to solve a problem that they all struggle with. There were obviously competing interests at work, but there was also a great deal of common interest.

But how difficult will it be to build a blockchain-enabled data call solution? In 2016 I wrote the report “Choosing Blockchain Use Cases in Insurance: Guiding the Hammer Toward the Real Nails” which analyzed the feasibility of different uses of the technology. Applying that same framework, a data call solution looks like this:

The complexity of design and implementation are relatively low. The data call use case plays to the strengths of the technology: data security, immutability, and distributed networks. The challenge will be in the cooperation and approval of regulators. Getting the different parties around a table in design workshops is a very positive step toward solving for these. From what I observed in the session I attended, I'd say the prognosis is positive.

This blog entry has been reprinted with permission from Celent.

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