Distributed Ledger Technology and Blockchain

Abstract

This chapter reviews the developments and initiatives driven by distributed ledger technology (DLT) or blockchain technology within the insurance industry. In order for the insurance industry to capitalise on the very real benefits, however, progress towards standardisation (of practices, systems and databases) is required along with a willingness for intra-market cooperation to foster ecosystems. If achieved, the prospects for the insurance industry in utilising this technology to help embed itself as part of the wider digital economy, are bright. Broadly, the activities undertaken by insurers and reinsurers to date fall into three camps. First are more prosaic initiatives designed to improve efficiency, lower the costs of transaction processing and improve data quality and transparency. Second, fraud detection, risk prevention and “smart” contracting are at the forefront of several collaborative efforts undertaken within the industry or in conjunction with major external technology entities. Third, and most interesting, is the development of new markets and tools for risk management and sharing. While the first two limbs, efficiency and fraud prevention, are important, it is the third which holds particular promise and which is structurally important. DLT or blockchain technology may enable a move to faster more efficient and more sustainable decentralised solutions for existing products and can also help unlock unrealised economic value for new products and connectivity with the digital economy. However, these opportunities are not without their corresponding challenges and risks, technological, legal and otherwise. Key challenges and risks to be considered in the context of existing legal frameworks relate to security and privacy, governance, scalability and standardisation.