At the 2018 NCCI Annual Issues Symposium, Paul Meeusen, from Swiss Re and B3i discussed a new technology concept for workers’ compensation – how blockchain can impact the insurance industry. So what exactly is blockchain?

Blockchain is defined as a digital data structure for identifying and tracking information across a network of computers. Blockchain provides a transparent and secure way to track and distribute the information. In insurance, we are talking about the information chain between the risk (policyholder) to the insurer, to the reinsurer and then to the capital markets.

A blockchain,is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a cryptographic hash of the previous block,a timestamp, and transaction data. By design, a blockchain is resistant to modification of the data. It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.”.

Blockchain was invented by Satoshi Nakamoto in 2008 to serve as the public transaction ledger of the cryptocurrency bitcoin. The invention of the blockchain for bitcoin made it the first digital currency to solve the double-spending problem without the need of a trusted authority or central server.

The bitcoin design has inspired other applications. While the blockchain has been subject to extreme hype, its true killer applications are likely to be in some of the most antiquated fields out there. And it has the capability to be a transformative force for industries like insurance, which requires the coordination and cooperation of many different intermediaries with different incentives.

And now technology leaders, such as IBM boast of bockchain implementations for the insurance industry. IBM claims that “technological disruption has come to insurance – and the smart risk management strategy is to embrace it. IBM Blockchain is radically transforming insurance operations with faster verifiable data exchanges, visibility for all parties, and transactions underpinned with pervasive security and trust.”

“IBM Blockchain records transactions on a provable, permanent ledger, so multiple parties can exchange data with increased transparency and security. This is particularly important for insurers dealing with sensitive financial and personal information, often with multiple parties involved.”

Insurance experts say today, we have a “man in the middle” problem. The person controlling the central ledger (often a broker) knows every detail on every transaction, but all the parties in the transaction are dependent entirely on that person for information. Under blockchain, all the information is in a shared online platform where all parties have access to it. This reduces the friction associated with risk transfer. There is no dispute over whether a premium was paid, a contract signed, an endorsement added, or a claim reported. All of that is updated real-time in the shared ledger.

And now the Insurance Journal reports that the Workers’ Compensation Insurance Rating Bureau in California is looking into using blockchain technology as a better, safer, way to get the workers’ comp carriers and agents and brokers access to the massive amount of data the WCIRB collects.

The organization isn’t stopping there. It’s funding efforts to look into using behavioral science, machine learning and other digital and technological innovations under an ongoing modernization effort.

Bill Mudge, president and CEO of the WCIRB, the provider of actuarial-based information and research and advisory rates for a state that comprises roughly one-fifth of all the nation’s workers’ comp premiums, talked about these changes with Insurance Journal.