Fender Benders: Can Blockchain Save the Claims Process?

By Russ Banham, Contributor

The traffic light turns yellow, you depress the brakes, and the vehicle behind you smashes into the rear of your car. Thankfully, you’re fine and so is the driver of the other car. Still, both vehicles are damaged. Frustration sets in.

Many drivers have experienced fender benders, requiring the filing of an insurance claim in the aftermath of the collision. Although the process has improved significantly in recent years—thanks in part to the ability to snap and send pictures of the accident to the automobile insurer using smartphones—blockchain technology will soon make filing a claim much easier.

Many drivers have experienced fender benders, requiring the filing of an insurance claim. Blockchain technology will soon this process much easier.

At least that’s the hope of The Institutes RiskStream Collaborative, an unprecedented insurance industry-led consortium of 31 insurers, insurance brokers, and reinsurers—including such well-known companies as State Farm, GEICO, and Chubb—creating the equivalent of an insurance ecosystem. RiskStream Collaborative is sponsored by The Institutes, a venerable not-for-profit insurance professional education organization.

Crucial to RiskStream’s plans to automate automobile insurance claims processing (and other types of insurance policies in the future) is blockchain, a distributed digital ledger with built-in security that records and verifies the transactions of participants in a network in realtime. Transactions are permanently time-stamped and stored in a block that is encrypted for trust and security reasons. By connecting each block to the preceding block, a blockchain is created.

To serve as its core blockchain technology, RiskStream selected Corda, an open-source platform developed by software firm R3, as its underlying blockchain technology. (Corda has been instrumental in other industry sectors like banking energy, agriculture and healthcare to explore blockchain-based digital ecosystems.) Following this decision, RiskStream launched Canopy, the insurance industry’s first blockchain-based digital ecosystem.

Insurers have come together to create an unprecedented industry-led consortium of 31 companies to automate claims processing.

Canopy is owned by the consortium’s member participants. “We’re currently working with service providers like Accenture, EY, and Deloitte to build out multiple use cases for the platform,” says Patrick Schmid, PhD., an economist who serves as RiskStream’s vice president, overseeing its products, operations, and technology.

Reducing the Stress Level

One of these use cases is to overcome policyholder challenges in filing an insurance claim, and insurer challenges in processing, adjusting, and promptly paying these claims. Consider the traditional exchange of information by two drivers in a vehicle collision.

“Today, you get in an accident and reach into the glove department for your paper registration and paper proof of insurance and dig in your wallet for your plastic driver’s license to provide to the other driver and law enforcement, in some cases,” says Schmid. “Each driver writes down or photographs this information and sends it to [his or her] insurance company or insurance agent to start the claims process.”

There will be no need to dig out paper registrations and plastic driver’s licenses following a car accident. The exchange of motorists’ information will be done with a mobile app.

Leveraging Canopy, this process would change dramatically: No exchange of paper or plastic is involved. Instead, drivers would access a mobile app provided by their respective insurance companies. Using the app, they would click on a “RiskStream Proof of Insurance” icon, which brings up a QR code reader. Drivers would then scan each other’s QR code. This information instantly travels to Canopy, which verifies the insured’s identity on the spot.

That’s step number one toward a more frictionless claims experience. The next step is the first notice of loss—industry jargon for the initial report made to an insurer following the loss, theft, or damage of an insured asset. This report kicks into gear the origination of the claim. “Because the drivers clicked on the QR codes, their insurers now have information that some sort of incident occurred,” Schmid says.

Today, this data is typically provided by policyholders to their insurance agents over the phone. While agents still want policyholders to call in the immediate aftermath of an accident, Canopy is already preparing the necessary exchange of information between the drivers’ insurers. This exchange determines which policyholder is at fault, which in turn determines the carrier on the hook for all or most of the claims payment.

Settling this issue currently entails numerous carrier-to-carrier phone calls and emails. “Our members estimate that it generally takes five phone calls on average between policyholders and insurers for them to settle fault and, therefore, liability for a claim, with each call consuming roughly 12 to 15 minutes,” Schmid says.

These phone calls decrease in number or disappear altogether when using Canopy’s real-time automated system, saving time—and frustration—for both insurers and policyholders.

“We’re able to get to the bottom of a set of facts that in the past involved multiple information exchanges,” says Sean Ringsted, chief digital officer at giant global insurer Chubb. “This will be replaced by parallel flows of data, all of it securely stored and accessible in one place.”

“We’re able to get to the bottom of a set of facts that in the past involved multiple information exchanges. This will be replaced by parallel flows of data, all of it securely stored and accessible in one place.”
—Sean Ringsted, chief digital officer, Chubb

While the cost-saving benefits that result from lower processing cycle times and fewer labor-intensive touch points help the insurers’ bottom lines, Ringsted emphasizes that the real value of Canopy is an enhanced customer experience. “There’s no question this is a vastly more efficient process, but the most important point in all this is the customer. If we can streamline the traditional process of reporting a claim, we all benefit.”

All for One, One for All

Prior to joining together to fund and deploy Canopy, many of the varied members of RiskStream were developing their own blockchain platforms to solve their respective claims processing problems.

“They were creating their own blockchain apps, each with a unique framework,” Schmid explains. “The industry wasn’t capitalizing on ‘network effect’—whereby a product, in this case an app, gains additional leverage as more people use it. Canopy solves this problem by being the backbone for various apps, which all the participants can use.”

Ringsted affirmed this perceived value. “Canopy’s greatest impact is as a network, in which the benefits continue to accrue as more people use it,” he says. “This is potentially an industry solution for a set of industry problems. And the fact that it is sponsored by The Institutes, an organization with a long history of collaboration, information sharing, and developing assets for industry-wide applicability, ensures every member accrues mutual benefits.”

These benefits extend to policyholders. A motor vehicle collision is a traumatic event, made more stressful by the claims process that follows. Down the line, Canopy has plans to make this process less aggravating, by leveraging the Internet of Things (IoT).

Imagine a future in which a car knows who is driving it, based on computer vision software inside the vehicle. Following an accident, an IoT sensor in the automobile instantly transmits the policyholder’s insurance criteria to the insurance company on Canopy. “The first notice of loss process would then launch without the insured’s involvement,” says Schmid.

While this is occurring, Canopy immediately notifies nearby tow trucks to transport each vehicle to a repair shop, based on each insurer’s list of preferred tow truck and repair providers, freeing policyholders from the task. A rental car is simultaneously dispatched to the scene of the accident for each driver. In each case, a smart contract is triggered on the platform to pay these third parties.

Simultaneous with all of the above, the insurers of the two drivers begin the claims subrogation process—determining the net payment of the claim based on fault. In certain accidents like a minor rear-end collision, the insurers can rapidly determine which driver is at fault, resulting in the immediate issuance of a claims check, deposited the same day as the accident in each policyholder’s bank account to pay for needed car repairs and related costs. “The bureaucracy of insurance disappears,” says Schmid.

As appealing as this possible future may be, it will take a few more years for RiskStream to pilot test the various use cases and commercialize them all (there are a dozen use cases lined up at the moment, each involving different RiskStream members). “We’re at a good place where we’re just beginning to understand how blockchain technology and the IoT will come together to make sure what we perceive will work actually will work,” says Schmid.

“We’re at a good place where we’re just beginning to understand how blockchain technology and the IoT will come together to make sure what we perceive will work actually will work.”—Patrick Schmid, economist, vice president, RiskStream Collaborative

Ringsted agreed. “Right now, everybody is dipping their toes in the water, but eventually all of us will jump into the pool and the business impact will become clearer,” he says. “Once we reach that tipping point, the possibilities are endless.”

Russ Banham is a Pulitzer-nominated financial journalist and best-selling author.