In our experience, most exploratory encounters with blockchain are categorized by either confusion or skepticism. Some of the consistent problems we encounter are:
- conflating the underlying blockchain technology with its most popular use case, cryptocurrency. blockchain is not bitcoin
- navigating the hype curve; what use cases actually benefit from blockchain?
- “why can’t I just use a database?”
Understanding the appropriate use case for blockchain is a non-trivial problem in the space. To this end, I thoroughly enjoyed the client breakfast I attended at IBM Think because it provided one of the most resonant use cases I’ve encountered for “why blockchain?”
Imagine that there’s a hurricane bearing down on the Gulf Coast, and that you’re a state regulator who needs to know the approximate value of things in the storm path. To estimate this, you want aggregated data from the all the insurers who cover property in the area. Ideally you’d like to query a single source rather than aggregating this information yourself, and for antitrust reasons the insurance carriers can’t share their information directly with each other.
Now imagine that you’re an insurer. Imagine that the storm path is changing and the requests for updated data are frequent (and on top of that, you get a lot more out-of-band data requests from the regulators; these requests aren’t just confined to the midst of a storm.) Fielding these data requests costs you a lot in terms of time and money, and you rarely get anything back from the regulator for your efforts. Sometimes there’s negotiation between you and the regulator on what data you can and should be able to reasonably provide.
Now imagine how you can take some friction out of this process.
Enter the insurance advisory market, and specifically the company I spoke with, American Association of Insurance Services (AAIS.) AAIS is a non-profit advisory organization that sits between insurance carriers and regulators. AAIS collects data from insurers and then provides aggregated reports to regulators. While AAIS was previously able to fill this role using other technologies and processes, they have found a compelling use for blockchain.
Here are some of the primary features of their blockchain network, openIDL (open Insurance Data Link):
- Insurance carriers keep their data in their own private data stores and then put a hash of that data on the blockchain, ensuring that insurers maintain the privacy of their data and also that there are no antitrust violations for aggregating data.
- Records are immutable and traceable. This provides both proof of data integrity and proof of reporting.
- They run their blockchain using Hyperledger Fabric, a permissioned blockchain. A permissioned blockchain means that insurers can choose what pieces of data to share and when. Regulators request access to data on the blockchain, and insurers can approve or veto requests.
- There is transparency around which data is used for which regulatory reports. Because the reports can be tied back to the data sources, the insurers now have an ability to see the results of the data they share. This provides an incentive to participate in providing data (because while antitrust rules prevent insurers from sharing information directly with each other, aggregated industry data is allowed.) By receiving the reports back from regulators, there is now value to insurers in providing data to regulatory bodies whereas before it was entirely an overhead burden.
- Data is easier to aggregate for regulators, and the resulting reports are easier to share back to insurers.
Of the many examples that I’ve heard, this use case resonated with me. There are a variety of regulatory reasons that preclude other options, and the introduction of the technology has created value for all involv….. wait a second. Everyone?
Perhaps what’s most interesting about the openIDL blockchain network is that it was initiated by AAIS. One of the defining characteristics of blockchain is that it’s a distributed technology designed to operate independently of a central authority. It’s somewhat surprising, then, to see a technology designed to disrupt middlemen be adopted by a middleman.
This irony is not lost on AAIS; they expect blockchain to be disruptive to their existing business model. AAIS pursued a blockchain solution anyways because they are excited about its transformative impact on their processes, and they have plans to expand the other ways they provide value to their members beyond mere aggregation and reporting.
So often a company’s “digital transformation” story is driven from a place of fear. Fear of evolving competition. Fear of threats from adjacent markets. Fear of an uncertain technological landscape. Fear of being of being disrupted. What made it especially fun to talk to AAIS was that instead of fearing disruption they were seeking the opportunity to disrupt themselves. That I finally met a use case for blockchain that made sense to me was icing on the cake.
Disclaimer: IBM is a RedMonk client and paid T&E for my attendance at Think.