Fitch Ratings has asserted that although the implementation of blockchain technology offers many benefits for re/insurers in terms of cost, security and efficiency, it does not address any immediate crisis and its viability will thus be dependent on adoption by a select group of industry leaders.
Fitch claimed that, currently, most re/insurers are taking a ‘wait-and-see’ approach to blockchain, as uncertainties around the technology remain pronounced and its primary enhancements are generally not considered a pressing need by management.
Existing accounting and transaction processes that support the management of immense volumes of data have been in place for a long time, and many companies seem unwilling to justify the expense of overhauling a system that is currently sufficient.
Nevertheless, Fitch claims that early adopters of this technology could gain a major competitive edge, citing The Blockchain Insurance Industry Initiative’s (B3i) prediction that blockchain could reduce reinsurers’ annual expenses by 30%.
If such an estimate is accurate, Fitch claims it would only take a handful of pioneering industry leaders to implement the technology before others followed their lead.
Blockchain also has the potential to increase a company’s efficiencies through greater automation of its core operating functions, and to allow re/insurers to capture more customer-specific data from remote electronic devices.
Furthermore, Fitch expects companies with blockchain capabilities to be able to price risk more accurately through increasingly granular data analysis, to reduce fraud, and to gain faster and more transparent customer service via web-based tools.
The re/insurance industry also represents fertile ground for blockchain technology due to its reliance on large numbers of complex transactions between multiple parties.
However, the benefits of blockchain remain as of yet largely unproven, and most re/insurers seem content to stay informed on trends while waiting for greater usage to emerge so that they might leverage the knowledge developed by others.
There also remains the risk that, while early movers in developing blockchain capabilities may gain a temporary competitive advantage, the technology may soon be supplanted by some other unforeseen development.
Additionally, there are numerous legal, regulatory, and security issues that need to be addressed before wide-scale adoption of blockchain technology can be facilitated.
Although Fitch continues to regard blockchain technology as potentially game-changing for the re/insurance industry, it does not expect it to affect ratings over the short to intermediate term.
