Blockchain and insurance: a review for operations and regulation

Author:Richard Brophy
Position:Faculty of Business and Society, University of South Wales, Pontypridd, UK and Department of Marketing and Business Computing, Technological University Dublin – Tallaght Campus, Tallaght, Ireland
Pages:215-234
SUMMARY

Purpose The purpose of this paper is to examine the operational and regulatory positions of the employment of Blockchain in the insurance industry. Blockchain technology has attracted wide interest from various stakeholders. Many theorists are predicting that this technology will disrupt financial services, including insurance. As stated that the development of blockchain is dependent on regulatory acceptance of this... (see full summary)

 
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Blockchain and insurance:
a review for operations
and regulation
Richard Brophy
Faculty of Business and Society, University of South Wales, Pontypridd, UK and
Department of Marketing and Business Computing,
Technological University Dublin Tallaght Campus, Tallaght, Ireland
Abstract
Purpose The purpose of this paper is to examine the operational and regulatory positions of the
employment of Blockchainin the insurance industry. Blockchain technologyhas attracted wide interest from
various stakeholders. Many theorists are predicting that this technology will disrupt nancial services,
including insurance. As statedthat the development of blockchain is dependent on regulatory acceptanceof
this technology, it is essentialto establish the current state of play with regard to the application and use of
blockchainfrom a commercial and regulatory standpoints.
Design/methodology/approach This review encompasses a number of approaches to view the
current status of Blockchain applications. From a commercial approach, this research lists the current
applications of blockchain within the insurance industry. From a regulatory point of view, the current
positions of the EU and national regulatory bodies are enquired upon to establish how they are examining
FinTech andBlockchain technologies within theirregulatory processes.
Findings This review illustrates a numberof Blockchain applications in situ from a commercial point of
view. From a regulatorysetting and following a call from international andEU levels, it appears that various
regulatory bodies have begun theprocess of formulating testing processes for FinTech applications. There
are two predominant types in operation, while othersare forming points of contact for advice for FinTechs
and a small amount who have not begunthe process at all.
Research limitations/implications This review illustratesthe current state of play of blockchain in
insurance from a commercial and regulatory point of view. While this has been observational, this review
pulls together information from various sources to encapsulate the regulatory positioning of evaluating
FinTech andBlockchain technologies for academia,regulatory and industry audiences.
Originality/value This review offersa central resource of information with regard to the currentstate of
blockchaintechnologies in operation and regulatory approachesto this and other FinTech developments.
Keywords Regulation, Compliance, Insurance, FinTech, Blockchain, Sandbox
Paper type General review
Introduction
Blockchain technology and its development in the FinTech sector are dependent on laws and
regulations which will affect how far and how fast the technology develops, and regulatory
approaches will need to balance its innovative spirit against the possibility of unintentional
systemic risks to the nancial system (Yeoh, 2017). Scrutiny of the growth of Bitcoin and other
cryptocurrencies has resulted in greater focus on the concept of distributed Blockchain
databases (English et al., 2016). The enthusiasm for blockchain is summarised by Swan (2015)
who states that the potential benets of blockchain are more than just economic, they extend
into the political, humanitarian, social and scientic domains and the technological capacity of
Blockchain is already being harnessed by specic groups to address real-world problems.
Blockchain
and insurance
215
Received17 September 2018
Revised25 April 2019
Accepted30 May 2019
Journalof Financial Regulation
andCompliance
Vol.28 No. 2, 2020
pp. 215-234
© Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-09-2018-0127
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1358-1988.htm
Much of the published research on blockchain applications has focused on its
possibilities and potential benets. However, this has not taken into account the actual use
of blockchain, or examined in detailhow blockchain can improve activities. Insurance by its
nature requires a signicant amount of administration for managing its clients
(policyholders), underwriting, regulatory affairs and claims processing. While published
works on blockchain with an insurancetheme have outlined some innovative concepts such
as distributed ledger technology, smart contracts and automated processes, very few have
outlined actual examples in action.As insurance is a highly regulated industry at a national
and international level, regulators have a part to play in fostering and integrating with
blockchain technologiesso they can perform their function in the industry.
To critically apply blockchainto the insurance industry, it is crucial to establish the type
of innovation blockchain bringsto insurance, the functions that allow insurance companies
to operate, and also to use real-time examples of blockchain in action. In addition, it
is essential that we gather information from the insurance industry and from regulators
regarding their attitude to the application of blockchain to this sector. While very little has
been written exclusively on the insurance industry (Robson and Sekhon, 2011), this paper
attempts to contextualise the main components of blockchain and its application in
insurance to offer an operational and regulatory review of blockchain for academics and
industry practitionersalike.
Functions within insurance
To establish where blockchain can work in insurance, it is necessary to establish the
different functions and processes at work in the insurance sector. Using Porter (1985) to
examine competitive advantage achieved through the various components of the value
chain, allows a complete overview of the functions at work within an insurance company.
However, as identied by Stabelland Fjeldstad (1998), the value chainapproach may not be
suitable for a service industry such as insurance, so they propose using value networks to
critically analyse a service industry effectively and incorporate a customer dimension into
the analysis. Using this approach and research done by Fjeldstad and Ketels (2006) on a
typical insurance undertaking, they have broken down the components into three
groupings, creatingan insurance value network (Figure 1).
Figure 1.
Insurance value
network
Marketing
Selling to groups
Selling to
individuals in
groups
Build brand
Service
Premium
Administration
Customer Service
Groups
Customer Service
Individuals
Payments to
insured (Claims)
Infrastructure
Product
Development
Product Packaging
Risk Analysis /
Pricing
Asset Management
Source: Adapted from Fjeldstad and Ketels (2006)
JFRC
28,2
216

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