The problem with Blockchain...
Anybody who knows me knows that I’ve never been a Facebook fan. I’ve never quite ‘got’ it, I don’t have a profile on there and quite frankly it’s never been a factor in my thoughts – well until very recently…
In a nutshell I became gripped by the soap-opera of Mark Zuckerberg apologising to US Senators and a question came to mind that I now feel compelled to share in a blog. Who will go down in history for putting Blockchain adoption in insurance claims back years - the EU through GDPR or Mark Zuckerberg through Facebook?
Let me explain why that question has come into my head.
I’ve long held a view about not getting too carried away with cool technology that neither has a clear articulated need nor a relatively unimpeded delivery trajectory. Ironically, Blockchain as a rule has never been in that category for me as I can see the clear applicability in all sorts of legal and insurance contexts;
- Smart contracts – tick,
- Purchasing of certain types of insurance – tick
- An ability to see both sides of an incident in terms of assessing liability and subrogation – tick
Yes, I can tick the boxes of a number of ‘needs’ where there is a clear defined path to a deliverable product based on Blockchain tech in insurance – given time. So, I get the transformational nature of the technology in insurance as a whole. In summary, will it impact insurance and legal over the next five years? Yes most definitely, I’d take that as a safe assumption to make.
So what is my issue with Blockchain?
The issue I’ve got is that I’ve never quite seen how it can revolutionise the insurance claims space as a standalone technology…or more specifically, I don’t see any insurance claims challenges that it solves that could possibly rank higher than the more obvious priorities facing the claims industry at present.
Don’t get me wrong the theory is sound; the often floated idea of the industry clubbing together to create a Blockchain and share claims data looks obvious. An ideal technology to catch those pesky fraudsters who walk between the raindrops? Yes, on paper that works – but realistically is that achievable where we are today? The tech may be ready – but is the market ready to adopt it? I don’t see how it is.
Again, I’m not decrying the power of data to detect fraud – far from it – I’m the most enthusiastic evangelist when it comes to the power of data and industry-wide I’ve seen the excellent work the Insurance Fraud Bureau have done and continue to do on their 2020 vision to help the industry share data to counter fraud. Also, I must not forget that whilst I write this blog with my own personal views, with my Keoghs hat on, we do have a couple of data solutions that have helped our clients identify and pursue fraudulent activity.
The key point that has to be confronted is simple, is there a ‘need’ for a Blockchain to solve counter-fraud problems as we stand at present? Or is Blockchain in a counter-fraud sharing capacity just a more secure and distributed way of sharing data that is currently already aggregated? I guess what I’m saying is that I just don’t see counter-fraud as being the key requirement for Blockchain at the moment.
The other main challenge going through my mind was – if not fraud, then what about the other ‘use cases’ based on the sharing of data using Blockchain? Do these stack up or do they also fail the industry deliverability test when applied to claims data?
Let’s take the obvious challenge to all these other use cases first. If data is the new ‘oil’ then is it feasible to expect everyone in the industry to take an altruistic approach to claims data sharing? Is it feasible to assume that the industry could collaborate in the short term to ‘buy-into’ industry-wide Blockchains? Surely this is an issue the sector will need to address if true value is to be extracted from Blockchain.
Secondly, those who work in the industry with any data experience will tell you – getting quality and trusted data is often a challenge in itself – so how can we solve that challenge first before getting to something we can actually trust? Are we trying to run before we can walk?
Ironically, up until recently I very much saw the potential of Blockchain to overcome the key challenges of security, quality and data trust. Indeed the non-distributed data model has to be right for the future – for a number of claims use cases ranging from liability assessment, through claims supply chains and collaborative dispute resolution. The issue I see is that with the likes of the Facebook and Cambridge Analytica sagas now bringing ‘knowledgeable use’ to the public consciousness, the zeitgeist seems to be against it.
A storm is brewing and is focussed on disrupting how personal data is used
Now unless you have been on a sabbatical for the last 18 months you cannot fail to recognise those 4 letters – GDPR. As we all know, later this month this becomes applicable and is already causing a lot of people to do a lot of work in readiness. I’m not going to go into the ins and outs of this bit of data protection legislation. However, suffice to say the penalties are big for anyone who gets compliance wrong. This is particularly sensitive for financial institutions of course who process lots of personal data.
Whilst I can see pragmatic organisations making their sensible way through the legislation – there will be a period of adjustment in how people ‘bed this down’ and during this time organisations will play safe if the guidelines are unclear as to their responsibilities. This would be a natural and understandable reaction of course. So straight away, does this conservative approach further limit the impact of a Blockchain being applied in claims in the foreseeable future? – I would argue it does.
We have then got the Facebook/Cambridge Analytica impact that further complicates matters and which has multiple impacts in my opinion:
- Firstly it has brought the aforementioned personal data issue to the consciousness of the public in respect of the commercialisation of their data.
- Secondly, if you are sharing data with trusted third parties in a distributed fashion how can you gain confidence you know (and as seen in the Facebook example can evidence) what these parties are using it for further down the information chain
- Thirdly, there will be a flight to and a fight for favourable contract terms to try and shift the burden that arises from the liability of data breaches – some of which will no doubt be contentious, some of which will create an unsurmountable barrier and risk to parties processing data (see the recent article https://www.lawgazette.co.uk/practice/reject-data-contracts-with-solicitor-firms-bar-told/5065930.article for a relevant example of this) and
- Finally, (and perhaps most importantly), I read with interest the words ‘class action’ in the legal press recently that could quantify the Facebook/Cambridge Analytica issue at some $70bn in damages– meaning the fear of legal action will act as a sobering and anchoring thought.
So, in essence, arguably whilst the business case for Blockchain in claims does appear to be obvious, as a standalone tech in the claims industry as we stand at present – I don’t believe we are ready. Fundamentally, it is probably not in a place where it can extract most value for any early adopters and when combined with the present barriers to implementation that GDPR and Facebook have brought us – at best it’s a long-term investment.
Put simply, we probably have enough going on in the data and claims world without Blockchain complicating it further.
Against this backdrop and in a world where technological transformation change in insurance is here and now, the question should be where would I focus disruptive change in the insurance claims space? Where would I place my chips on the technology investment wheel to leverage most benefit?
Well I’d probably look at where the benefits best outweigh the risks. I’d look to digitise the claims process as much as possible, I’d look to improve and automate processes, I’d look to leverage AI technology to reduce processing cost and I’d look to pick up the “Blockchain in Industry Claims Data Sharing” question in a few years once GDPR and Facebook are long in the memory and the clearer Blockchain ‘use cases’ have been delivered in the underwriting and insurance product development space in particular.
Put simply, I would go for the lower hanging fruit that delivers the biggest benefit, where the success is completely under my control and where technology delivery can be assured.
And in answering the question set at the outset – in terms of what is responsible for putting adoption of Blockchain in claims back years- Facebook or GDPR? I’d probably point the finger at Zuckerberg because at least he’s good at apologising.