On January 5, the Federal Insurance Office met at the U.S. Department of Treasury to hold its first 2017 meeting of the Federal Advisory Committee on Insurance (“FACI”), which is comprised of leaders from American insurance companies, regulators and advocacy groups. The meeting discussed a variety of topics from insurance fraud, consumer protection and capital standards. FACI also hosted its first meaningful discussion on blockchain technology and its use in the insurance industry.
Although the cryptocurrency bitcoin is the most successful and well-known implementation of the technology, blockchain technology is much broader, offering many other uses than merely forms of payment. Blockchain technology offers a distributed ledger, which allows one to securely record, confirm and trust transactions with third parties, with little risk of security breaches such as hacking.
More specifically, blockchain technology offers a variety of applications in the insurance industry, from product development and distribution, underwriting, payments and financial transactions, claims, administration and anti-fraud efforts (including OFAC and KYC requirements for life and annuity insurance). These applications may also offer significant operational cost reductions, not to mention increased claims and underwriting validity.
Large industry players have been experimenting with proof of concepts for the past year or two, and a few months ago five of the largest insurers announced B3i, a blockchain insurance consortium. This meeting was of landmark significance in the insurance industry’s implementation of blockchain. Given the potential impact blockchain may have on the insurance industry, it is important that insurance companies and regulators include themselves in discussions of this technology early and often in order to better understand the technology and how it can be applied to the industry.