How China’s Leading Insurtech Players are Leveraging Blockchain Technology
Despite issues of public trust towards Blockchain in general, China’s Insurtech industry is leading the way in using Blockchain to revolutionize the industry.
By Wayne Xu, Senior Venture Architect at BCG Digital Ventures
Many in China lack trust in Blockchain technology. Sometimes that’s because they are either unfamiliar with the technology or have been burned by the cryptocurrencies that trade on top of it. In fact, it’s not uncommon to hear people assume that the Blockchain is one and the same as cryptocurrency — by which they often unfortunately mean altcoins (sometimes referred to as “shitcoins”.) This is largely due to the fact that quite a lot of people in China ventured their fortunes on rash speculation camouflaged by the language or hype of the “Blockchain revolution,” only to suffer great losses in several deliberate dumpings from cryptocurrency dealers.
From the perspective of China’s leading insurtech firms, however, Blockchain represents far more than cryptocurrency exchanges or initial coin offerings (ICOs.) It represents a powerful opportunity to reduce transaction costs, lower credibility frictions, and enhance liquidity of transferrable policies and assets. And it’s not just insurtech firms: Universities, governmental authorities, and enterprises are pouring considerable resources into research aimed towards further evolving Blockchain and its relevant applications across a wide range of industry verticals.
To understand how insurtech players are disrupting their traditional business models and IT infrastructure with blockchain technology, let’s take a look at some current exemplars in the market today.
Ant Financial: Blockchain Technology as the New Infrastructure of Health Insurance Claims Processing
Historically speaking, health insurance claims can take a long time to process. However, at the end of 2018, Ant Financial’s Alipay (an affiliated company of Alibaba Group) launched a new Blockchain-based invoicing system that significantly increased the speed of this process.
With this new system in place, key stakeholders, namely hospitals, the Alipay service backend, and insurance companies, were introduced onto the Blockchain in the format of “consensus nodes,” instantaneously synchronizing data and information flow. Designed to achieve reliability in a network involving different parties, consensus nodes serve as the basic distributed “units” in said network, adhering to certain protocols or algorithms to achieve agreements (or consensus). Provided the infrastructure around the blockchain works well (i.e. the signal base station, Wi-Fi bandwidth, IaaS cloud setup, etc.), processing and verifying insurance claims can now be done in a matter of seconds.
We may refer to the below figure to better understand how Ant Financial managed to make this happen.
Let’s break this diagram down.
The user facing layer shows offline user behavior and money/claim flow within the Alipay app. When visiting the hospital, the only thing patients need to remember is to bring their smartphone with the Alipay app installed. Once a patient finishes treatment and fulfills payment, the hospital issues the electronic invoice to the “Invoice Manager” applet (a very small application) within the Alipay platform, enabling patients to see it immediately. With just a few clicks to agree on insurance terms and conditions, the claim procedure will automatically begin and the patient will be reimbursed in roughly five seconds.
The function layer is the most essential part of this model.
From the hospital side, tamper-proof invoices are generated and issued directly on the blockchain, making authentication worry free for Alipay to accept and for other consensus nodes to synchronize.
From the Alipay side, this acts like an unbiased third party on the blockchain to validate and synchronize necessary data and information, connecting critical stakeholders. Although Alipay’s brand is well known, the blockchain can resolve trust matters amongst all parties in the ecosystem. This makes it substantially easier for players who have not yet obtained the same credibility as Alipay to participate, thus enriching the diversity of the ecosystem.
From the insurance side, the consensus node is targeted at increasing the efficiency of claims. With traditional offline operations, even if a patient fulfills payment via e-wallet, they still must submit numerous paper insurance claims, meet with a claims agent, or visit the local branch of their insurance company, and then wait at least 10 business days to be reimbursed. And this only happens when the patient submits documents correctly. However, with the blockchain tracking and synchronizing invoices from the time of their inception, tedious checking procedures are replaced by highly efficient automatic recognition. Problems like over reporting, false reporting, or fraudulent invoicing are eliminated from the beginning, and that is exactly why verification can happen so smoothly and quickly. You just need to wait for the patient’s consent and systematic response, and the money claimed can be transferred at once.
Finally, the infrastructure layer is something completely invisible to patients, yet still very important to the functionality of the process. By its very nature, the blockchain has the ability to execute and synchronize anti-fraud commands very quickly. Meanwhile, the infrastructure layer secures the blockchain and provides storage for all data in the network. In the future, we can expect more and more data and with increasing variety, like e-prescriptions from hospitals, transferrable tokenized insurance assets, etc. As such, we will need to make sure that the infrastructure layer is strong and solid enough to avoid possible data accidents caused by insufficient infrastructural capability.
ZhongAn Insurance: cutting-edge tokenized insurance scenarios
ZhongAn Insurance (6060.HK) is well-recognized as China’s top insurtech firm, with product offerings that showcase best-in-class innovation in the digital insurance sector — and it also happens to be my previous employer. In 2017, when ZhongAn began performing research on upgrading its core insurance system with Blockchain technology, I was assigned to be the project manager of its fourth-generation insurance core system development. While I cannot disclose the exact details of this system, I can give an in-depth description of tokenization and insurance scenarios, which are two of the strongest propellers boosting ZhongAn’s latest insurance system.
Figure two explains how ZhongAn digitized its policies and various products by classifying traditional on-paper clauses into three types of tokens. Different from the definition of “token” in cryptocurrencies, ZhongAn defines its token as a “valued unit that is coded and encrypted, representing specific meanings or certain ratio/amount of assets on the blockchain.” Bearing this in mind, we can now gradually unveil the benefits of tokenization.
Most insurance companies are still using very old-school core systems with poor efficiency and astonishing data redundancy. Hard copy policies are stored in companies’ servers, which, as we saw in the previous example, require much more time to process and validate. Tokenization has not only shifted the flow from offline to online, but also empowered the blockchain to generate, synchronize, transfer, and even optimize policies via smart contract.
For example, if I were to receive a new policy that is nearly identical to a policy already in my e-wallet save for a few different clauses, do I (or my insurance company) have to keep copies of both? With the traditional system, the answer would be yes — any policy with a new clause must be stored in its entirety, no matter how redundant it may be to previous policies. However, with the blockchain, we just need to have one 100% flexible policy that can be reorganized in any number of ways, and each clause need only be stored once. All of the tokens are coded to best fit the smart contract execution, and can easily be duplicated, regrouped, or reorganized just as the policies “need” them to. From the backend, every single token is a combination of several lines of code, thus policies are fully digitalized and 100% transferrable.
Customers, products, scenarios, and regulations are the four major attributes to make insurance businesses viable. With tokenization on the blockchain, trust of users can be enhanced, products, in this case policies, are now very structured and easy-to-code thanks to tokenization. Data isolation can be alleviated because participants from various industries are now well connected to the Blockchain network. Further agile upgrades of products can be siloed, data isolation can be alleviated with connections from industrial scenarios such as reinsurance, digital insurance, healthcare and auto, and strong regulation can be made possible since the regulatory consensus nodes can be added directly on the chain.Thanks to tokenization, products are now very structured and easy to code, and data isolation can also be alleviated because various participants are now well connected to the Blockchain network.
Seeing the benefit of user experience improvement, product innovation, cost savings, and regulatory efficiency, ZhongAn is actually deploying tokenization of policies with an even faster pace.
Figure three is an illustration of multiple insurance scenarios. An individual is likely to have different policies from different insurance companies, so this resembles those real-life use cases.
By leveraging Blockchain in various insurance scenarios, ZhongAn is helping give rise to more and more synergies across the insurance industry, at the same time significantly increasing overall transparency. In short, not only will ZhongAn benefit from this, every player in the insurance ecosystem will. With this new system in place, ZhongAn Insurance has served as a pioneer in the insurance space in terms of technological capabilities, concept ideation, and solution-based implementation.
Using Blockchain to unlock competitive advantage
Combining tokenization with insurance scenarios, we can easily foresee numerous opportunities to be unlocked. We have already realized several competitive advantages as follows:
1. Enhanced user experience: With more insurance firms leveraging tokenization, core system data output and APIs can be unified and standardized, thus enabling users to manage all insurance assets from different firms within one e-wallet.
2. Smoother service and more transparency: The natural characteristics of the blockchain ensure that high availability (HA) will be achieved with a certain level of network coverage. Meanwhile, since the policies are tokenized, no matter what kind of clauses or tokens are leveraged, regrouped, or reorganized, they shall follow the same coding protocol. This is valid to all players on the same blockchain, so it should be a fair game to everyone.
3. Lower docking cost: With more insurance firms recognizing the same token protocol and operating under the same scenarios, a real, open platform for the insurance industry is more likely to come into being. Insurance companies no longer have to communicate with different stakeholders via different channels; “plugging into” the common tokenized network will solve the problem and thus save a great deal of docking cost.
4. Increased automation rate: Pioneers in the insurance sector, including ZhongAn, Ant Financial, WeSure and TaiKang, are already using the blockchain as a tool, yet only part of their businesses are merged with the technology while core systems are still running in the traditional way. If no aggressive transformation is made around insurance core systems, they will probably continue to run in the old way, even if they are used to support some services already leveraging blockchain. Assets on digital platforms or apps are the most important data on blockchain if we want to fulfill tokenization, so the transformation naturally starts with assets. Meanwhile, insurance products, claims, or services are well connected with real-life scenarios, such as flight delays, sports injuries, car accidents, etc. Both users and companies will benefit from high-level automation of data transfer, risk control, and data validation.
5. Consolidated Risk Control: With the same blockchain network and tokenization protocol, insurance firms are capable of running SMPC (secure multi-party computation) data identification, analytics, and calculation, thus enhancing risk control with the AI-empowered risk and compliance model.
6. Longer Value Chain: With unified tokens representing unified value or content, more entities alongside the insurance value chain can join the game, such as co-insurance companies, reinsurance giants, and policy pledge players. As widely distributed mechanisms of the blockchain permit cross-chain interactions, an “almighty” insurance union made up of a very broad combination of insurance players sheltering everyone is definitely not mission impossible in the future.
7. Empowering Regulations: Connecting regulatory consensus nodes to wider insurance scenarios will fundamentally change the way authorities work, since regulatory audits can now be real-time and synergetic inspection afterwards is no longer their first choice.
Lighting the way for the future of Blockchain
From the two exemplars above, we can get a small glimpse of how China’s insurtech giants are stimulating their business with Blockchain technology and moving closer towards the shared ambition of creating a better, faster, and more secure insurance ecosystem. Blockchain technology could very well be the torch that flames the night of insurance from this point onwards, yet it is still too soon to tell whether the huge investment and efforts of those insurtech players will be sufficiently rewarded. Those adhering to the same great ambition are true pioneers, and they deserve recognition as they pave and illuminate the path forward.