Patrick Schmid, PhD, MA, is Vice President of The Institutes RiskStream Collaborative®. Previously, he headed the institute’s corporate research department; served as Research Director for the Insurance Research Council (IRC), a division of The Institutes; and worked as an economist for Moody’s Analytics. Schmid has taught economics and finance at colleges and universities in Philadelphia.
Blockchain technology is starting to transform insurance operations and is helping the industry address some of its challenges. The use of various blockchain technologies in businesses, including the insurance industry, varies depending on their adoption.
Cryptocurrencies, like Bitcoin, have been around for more than a decade, but institutions (including insurers) are now starting to hold them as a hedge against inflation.
Enterprise blockchain, which uses a private, permissioned blockchain network to share data and improve multi-party business processes, was introduced just over half a decade ago and is just now showing signs of moving within insurance production goes.
Newer applications of blockchain technology — such as decentralized finance, non-fungible tokens, and decentralized autonomous organizations — are imminent for the industry.
Each of these blockchain technologies will play a role in redefining the insurance industry for years to come.
For industry professionals and anyone else interested in these technologies, it is paramount to understand exactly what we are working with. Below is a list of some key terms used in this area.
Blockchain
A distributed ledger that keeps a continuously growing list of chronologically added records called “blocks”. In most blockchains, new blocks and the data they contain (transactions, smart contracts, etc.) are confirmed and verified by decentralized consensus. This verification process eliminates intermediary validation and builds trust without the use of a centralized authority.
cryptocurrency
A digital currency that uses encryption techniques to regulate the generation of units of currency and verify the transfer of funds that operates independently of a central bank.
Decentralized Applications (dApps)
Digital applications or programs that exist and run on a blockchain or peer-to-peer network of computers rather than a single computer. dApps (also called “dApps”) are beyond the purview and control of any single authority.
Decentralized autonomous organization
An organization governed by smart contracts that maintains financial records and program rules on a blockchain.
Decentralized Finance (DeFi)
A system that makes financial products available on a public blockchain network.
enterprise blockchain
A type of private permissioned blockchain that can be used to streamline business processes at scale. Enterprise blockchain technology helps achieve coherent, effective, and secure business practices.
Gartner’s Hype Cycle
A graphic representation of a common pattern that emerges with any new technology or other innovation. The five stages in the hype cycle are: technology triggers, peak of inflated expectations, trough of disillusionment, rise of enlightenment, and plateau of productivity.
Non-Fungible Token (NFT)
A unique and non-exchangeable unit of data stored on a blockchain. NFTs can be linked to reproducible digital files such as photos, videos and audio. &
