Federal Advisory Committee on Insurance Discusses Blockchain

With the introduction of 2017, the blockchain technology is seeing more adoption and regulation than it did in 2016. As government agencies are becoming more interested in blockchain technology their oversight could bolster mainstream adoption.

During a U.S. Treasury Department advisory council meeting in Washington DC, the Federal Advisory Committee on Insurance (FACI) discussed blockchain technology and how it can revolutionize the insurance industry. Matt Higginson, an Associate Partner in the New York office of McKinsey & Company, introduced and discussed blockchain technology in the insurance sector. Higginson is a member of the Americas Payments Practice, specializing in Payments Strategy and Banking Operations, and leads the Firm’s education in blockchain and digital ledgers.

Matt Higginson begins his speech with an introduction about how he got into blockchain technology, then lists the three things he would like to cover: What is the blockchain? What are the applications they’re seeing in the insurance industry? What are some of the challenges in the future?

What is the blockchain, where are we seeing it applied in companies today, and when can we see proofs of concept?

Blockchain technology is applicable across multiple use case categories as a static store of secure information, or a dynamic store of tradeable information. In insurance, the blockchain has the potential to make an impact across the entire value chain. The blockchain can be applied to product development and distribution, pricing and underwriting, payments and collections, claims, policy in administration and back offices, and risk capital and investment management.

Blockchain benefits to insurance:

Companies successfully applying blockchain technology to use cases in the insurance industry:

While Higginson believes that the blockchain brings solutions to the insurance space, he also points out success of early proofs of concept (PoC) have been achieved primarily by consortia working together. He also reveals that shaping the regulatory environment is the biggest challenge to unlocking the potential value of the blockchain.

Regulatory environment challenges:

The three main hurdles of blockchain adoption are the establishment of legal and regulatory framework, viability of business cases (including justifying costs of implementation and integration), and lastly, agreement on key standards and active collaboration across all required players. As Higginson stresses the importance of collaboration and regulation, he states:

“Frankly, the area where we are going to have to sort out regulation is where we make blockchain-based contracts legally binding. And that’s something that doesn’t exist today, but we know that there are discussions, particularly in the state of Delaware, to try and push legislation through to make that a reality.”

As Higginson closes his speech, he explains that the path to adoption lies in digital identity and that the blockchain is able to solve this issue with a paradigm shift in how we approach identity management today. As identity management platforms look into blockchain solutions, the success of a blockchain identity system will catapult the technology into mainstream adoption.