Blockchain is entering the business mainstream (it’s not just for BitCoin), and technology vendors are racing to establish position in hopes of becoming major platforms (just search “business applications of blockchain” to get a taste).

Blockchain is the technology underlying cryptocurrencies like Bitcoin — but its utility goes far beyond cryptocurrencies.  At core, blockchain is a secure, peer-to-peer (distributed) database — a ledger of transactions.  Because it is shared, encrypted, and auditable, it is extremely difficult to forge or cheat; each block (transaction) is dependent on those that surround it.  It can be permissioned, so only validated participants can view or transact in it.  And “smart contracts” (automated transactions which execute only when certain conditions are met) can be embedded within Ethereum blockchain, enabling secure, frictionless transacting on a massive scale.  (Indeed, Ethereum can be thought of as a publicly-accessible yet secure distributed computing platform.)

The secure, distributed ledger obviates the need to reconcile the different ledgers of all the participants in a chain of transactions, and supplies a common, secure, transparent “source of truth” for all the participants.  This makes blockchain particularly useful for processes where transactions occur among many participants; trust is required; and being able to verify the legitimacy and identity (even if anonymized) of participants is critical, such as:  healthcare records; voting; supply chains; and especially financial services such as banking and insurance.  Being able to process transactions with greater “efficiency, security, privacy, reliability, and speed” could revolutionize many business processes.  (

The reduction in transactional friction enabled by blockchain will have broad-based benefits, but the more far-reaching effects may be in the enablement of new business models.

A business model describes how value is created, harvested, and distributed.  One familiar example is the “razors and blades” model, wherein the razor is sold at relatively low margin to lock the buyer into using proprietary blades — which are then sold at a high margin.  (Consumer printers are predominantly sold with this model as well.)  The participants in this model are the individual consumer; distributors and retailers; and the manufacturer of the products.  The value is whatever the consumer will pay to get a shave; the powerful part of this model is that most of this value is harvested by the manufacturer over time via the sale of consumables (blades, or toner cartridges in the case of printers); and shared by the vendor and the sales channel.

Now, consider the conventional business model for insurance:  the participants are the buyer (either individual or an entity); the underwriter (insurance company); and the sales channel.  Value is created in two ways:  in the first (underwriting), risk is pooled by the insurer (across time and space), and priced to each customer as a fraction of that pool.  This works because what is a one-time risk for the insured, when pooled with many other similar risks over time and geographies, becomes a predictably probabilistic risk for the underwriter.  The second way value is created is by the insurer earning returns on the invested capital covering all the risks.  Insurers generally make most of their money on the latter (not underwriting) — especially because the administrative costs of quoting, underwriting, issuing contracts (policies), collecting premiums, claims service, etc. are substantial.

Blockchain’s first impact on the insurance business model is in reducing these administrative costs and enabling new capabilities within the current business model, such as on-demand insurance:

“Insurers are riddled with inefficient processes in every part of the value chain, which creates a plethora of opportunities to leverage a technology like blockchain.  Fundamentally, blockchain technology is a series of distributed ledgers that allows for trusted interactions to occur with immutable audit trails. The concept of a “Smart Contract” in a blockchain, associated with an event or an object, would allow for on-demand risk assessment with just-in-time underwriting based on simultaneous access to a single set of trusted facts, shorter duration, event-based personalized, insurance products and dynamic claims events without first notice of loss (FNOL), all without a customer trigger or fraud. As a result, this will dramatically lower transaction costs and risks, lower premiums, revolutionize the customer experience and expand the insurance customer base” (

But beyond that, blockchain could enable new insurance business models, such as broadly crowd-funded or peer-to-peer insurance.  (  In crowd-funded insurance, the underwriter focuses on risk assessment and pricing, and moves away from asset management (which dramatically reduces capital intensity for the insurer).  Instead, the insurer posts expected returns, and interested investors bid for the contracts (or portions).  Up to this point, this model looks like Lloyd’s, or peer-to-peer lending markets.  But blockchain smart contracts make the execution processes transparent and automated, even guaranteeing payments (with no need of a bank), and without the insurance company managing a large pool of capital.  Instead, a much broader pool of investors can participate, still holding the capital themselves (unlike a syndicate such as Lloyd’s, which has a limited number of “names”).

In this model, insurance could be less costly to customers, and it might be easier to insure very specific risks.

Of course, such a model is much more attractive to new entrants than to incumbents in the business, who already have accumulated capital assets to manage for their own benefit (and pay claims when necessary).

Blockchain may have implications for your business — it may even empower new competitors you can barely imagine.  And it’s coming fast.

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