Study: How Bitcoin Could Transform Personal Insurance

A new paper explores how Bitcoin could transform the way we manage personal life insurance. Namely, the blockchain could provide a global, secure and public record of personal health information.

In a 51-page report, the research group Long Finance described a range of potential areas where the blockchain could come in handy in the insurance sector. The London-based initiative “holds hope” that these applications could aid consumers.

From August to November, the Z/Yen Group asked financial service professionals, cryptography experts, and regulators about the blockchain's “potential relevance” to insurance. Their insights fill the report. The paper was co-authored by Professor Michael Mainelli and Chiara von Gunten, project manager of Long Finance. If you're short on time, a summary of the report is available as well.

Bitcoin is known for its unique storage properties. The blockchain is the public ledger that underpins the Bitcoin system. Once the data is entered, no one can tamper with the record. The idea is that in the insurance sector this extra ledger could store health-related information—potentially dealing a blow to fraud.

But hold up. The authors are quick to note that Bitcoin is not the only technology that could play a role in altering the insurance landscape. The blockchain, if it takes off in this realm, might coincide with other game changers, like mobile technology and the Internet of Things. These tools could help insurance companies gather more accurate data to tailor services.

Insurance and the Blockchain: Four Themes

While these other technologies are important to keep in mind, the blockchain has its own disruptive potential. The paper asks “what if” the Bitcoin blockchain could be used for different insurance activities? There are many ways this ledger can be used, the paper notes, and it splits up the uses into four groups: identity, space, time and mutuality.

Identity - Third parties currently store health care records. But individuals could keep this data on the blockchain instead, making it more accessible, and empowering the individuals. If record-keeping on the blockchain spreads, the report notes, the blockchain could disrupt how we manage identity. According to the report, these sorts of initiatives spring from the belief that people should be in control of their own digital identities and personal information. The paper reads:

“In insurance, the streamlining of digital authentication and better management of personal data and history disclosure could translate into more direct and efficient relationships between insurance companies and individuals. Over time, this could bring additional benefits by reducing identity and claim frauds.”

It could also be used for health-related notary functions.

Space - Data could be stored in a different space. Insurance companies close off health records in order to keep them secure, and act as an intermediary to accessing personal health information. But respondents note that the blockchain is a public, global database, that allows people to query the database directly. For example, users can look at their data on the blockchain from anywhere—or share it with third parties—potentially bypassing red tape. According to the paper:

“This dual relationship with space could support the tailoring of insurance products by expanding the range of products across places and by enabling nearly instantaneous adjustments of insurance coverage and pricing across space (and time).”

Time - Bitcoin could change popular understanding of contracts in terms of time—in the short run and in the long run. The blockchain stamps the time that you place information in the blockchain or lock it in a contract. This could be used in many ways, such as to help tailor insurance products across time. Here's one scenario proposed:

“When someone dies and the coroner verifies death and cause of death to their blockchain, then their last will and testament is released publicly, their health records are donated to medical research charities and their life insurance policy pays out automatically.”

Mutuality - The blockchain could facilitate alternate insurance options and perception of risk could change with the rise of alternative insurance structures. The paper imagines a shift away from risk pooling and proposes the rise of “mini-insurers” or “mini-mutuals.” Imagine the collaborative economy pioneered by startups like Airbnb and Uber, but extended to insurance when combined with mobile technology. On the other hand, the paper notes:

 “Blockchain technology may not revolutionise the way insurance operates. Nonetheless, it is likely to support wider trends of financial inclusion and new models of interactions between individuals and service providers including insurers.”

The Blockchain and Medical Data

The idea of storing medical data has been proposed several times before. Actuary Rui Dong briefly touched upon the blockchain's potential for insurance in a blog post. Israeli-based DNA.bits goes as far as to propose storing genetic data using blockchain technology—and keeping it private all the while. Some doctors have even pondered whether researchers could tap the blockchain, using the potentially vast repository of data for medical research. On the other hand, Long Finance's report is a deeper dive into the ins and outs of personal insurance.

All the while, a few early adopters are beginning to store data with the blockchain. BlockSign offers services to help users sign and store private records on the blockchain. Proof of Existence offers similar services, and the developer Manuel Araoz recently tweeted that he was contacted by a traditional notary. A couple recently used the blockchain to record their marriage—at Disney World no less. Nobody knows where this will lead. Long Finance noted that many of the insurers they talked to expressed doubts that the technology will lead anywhere in the short term. But the research group sees potential:

“Every personal insurer’s core computer system is, at heart, a big, centralised transaction ledger. At the very least, blockchains deserve to be evaluated technologically by insurers, as a potential replacement for today’s central database model.”

The paper notes that the group's interest in cryptocurrencies began as early as 2005. Long Finance research aims to look at the long term for financial trends and the authors admit that cryptocurrency development moves at a breakneck speed. “This report would be written very differently only months from now,” the summary report concludes.

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