If they can work out the rules, U.S. companies see blockchains, software applications set up to link users of cryptocurrencies, as a base for labor-saving, reliable systems for tracking contracts, payments, and people.
These digital accounting ledgers — think Excel-type computer spreadsheets, linked, and speeded up for the smartphone era — share and update data for verified users. This can make it simpler, faster, and cheaper for companies to keep current on staff, sales, profits, and legal arrangements — and push the public to obey the law.
All this potential has sparked a wave of blockchain investments and promoters. One ambitious blockchain is being set up by insurers, amid the horse pastures of Willistown Township west of Philadelphia, at The Institutes, a group of insurance professional organizations founded by a Wharton School prof in 1909.
The Institutes RiskBlock Alliance blockchain project has enrolled dozens of companies to build a shared system. They set out to avoid the usual financial-company practice of trying to build ingenious new applications into systems that might not fit other systems, "like re-creating the wheel each time," said Christoper McDaniel, RiskBlock's executive director and a former blockchain pioneer at Deloitte Consulting.
"What we are doing here is dramatically different," McDaniel said at The Institutes' stone campus. "We are building a blockchain to support multiple applications: a framework for applications, policies, claims. Not centralized, but standardized, so you can plug it into your server, if you follow the rules. This is revolutionary. It will change everything. It provides a basis for the industry to work together on universal problems — fraud, uninsured motorists, settling claims, payments by digital IOUs." Companies can "plug and play" their favorite apps, "so long as they follow our guidelines. Build once, use many times."
McDaniel's lieutenant, economist Patrick Schmid, has followed bitcoin and other cryptocurrencies and the apps that make them possible for the last decade. In 2015, working at the Institutes' Enterprise Research Department, Schmid caught the excitement emerging around "smart contracts," legal agreements that could be constantly updated via blockchain. Let's try that for insurance, Schmid told his bosses. "It became apparent there would be need for a consortium of insurance companies to test this," he said.
They have signed up 15 of the largest U.S. insurers. "Blockchain is about innovation and efficiency," Mark Cook, global chief information officer at the corporate broker Marsh LLC, told me. "We see it as enabling the creation of new business models, products, and platforms" to serve clients and stay competitive. Blockchain also promises to "reduce friction and improve speed of servicing," he added. He praised RiskBlock's "strong, practical approach based on the creation of working code and solutions."
"There is no doubt blockchain will play a role in the future of insurance, and likely a disruptive one," John Pileggi, assistant controller at Liberty Mutual Insurance, told me in an email. As part of RiskBlock, "we can collaborate with our peers in a safe environment to influence the impact blockchain has on our business and to unlock its potential benefits." Besides RiskBlock, Liberty Mutual is part of B3i, a Europe-based blockchain consortium.
Privacy and security are key. Insurers "don't want their data put into the big blockchain that everyone has access to. So we architected a 'Use-and-Lose' mentality — like Snapchat," said Schmid. Data stay in secure, company systems. "We use the data in that application, then blow it away. That keeps the data much safer."
Consumers will see the impact of blockchain soon, McDaniel added: "Right now, if you and I are in a traffic accident, we pull out our insurance cards. You say you've got Allstate, I say I have GEICO. But there's no way of knowing if that paper card is valid. So, we are developing a proof-of-insurance, on the blockchain, based on a ledger of pointers that direct into the back-end systems of the different participating insurers. You will be able to say, through your smartphone, that yes, this person has insurance, with 100 percent confidence." And settle claims on the spot.
That certainty, Schmid said, "is very powerful. You take away the risk of an uninsured motorist. And it's an application the cops can use to see instantly who's insured and block uninsured drivers from crossing, say, the Delaware.
What else, I worried, will police (or employers) know about us, at a glance, thanks to blockchain? Schmid urged me to see this as a blessing. "We are all paying for uninsured motorists," he said. "Blockchain could rid us of that cost."
Blockchain access is typically controlled by using a cryptocurrency, such as bitcoin. RiskBlock has experimented with Ethereum, a bitcoin rival that is popular with U.S. banks. Their hope is to avoid using a currency in the final system, using what McDaniel called "very robust electronic keys."
Blockchain "makes the customer experience more seamless than written information," McDaniel added. "This saves [companies] money. And hopefully that is passed on to the consumer. And the more information that gets on the blockchain, the stronger the blockchain gets. That flips traditional business competition on its head," he said. "It makes competitors have a desire to work with each other on industry-wide platforms," and to reach consensus. "We are migrating this industry from this Wild West competition to software-as-a-service."