State Farm Insurance Is Looking to Bring Blockchain Technology to the Subrogation Process
Blockchain technology has been making headlines ever since the recent cryptocurrency boom. And, while the potential of Bitcoin, Ethereum, et al as a true disrupter of mainstream financial institutions seems unlikely at this point, the technology which underpins it is piquing a lot of interest.
Worldwide spending on blockchain solutions hit 1.5 billion in 2018 and is predicted to rise to around 11.7 billion by 2022. The financial sector may account for 60% of blockchain spending, but it's found its way into almost every industry. Recent research found that nearly 50% of businesses expected blockchain to add to their current operating model, with another 33% stating that they expected blockchain to entirely replace it. Around 66% of global organizations have some level of interest in blockchain, with nearly 10% currently in the experimentation or deployment stage.
One such brand is the Illinois-based insurance giant, State Farm. But, before we get onto that, let's have a quick crash course into just how blockchain technology works.
Blockchain
At the core of the blockchain concept is a decentralized record-keeping system that stores information in secure blocks of data, which when combined with others form the eponymous chain. Blockchain's decentralized nature means that it is distributed and maintained across multiple network nodes. It is this which allows blockchain technology to authorize transactions without a central authorizing authority such as a bank.
The core principles of blockchain are security and transparency. Because the blockchain is stored on multiple machines, it becomes incredibly difficult for a hacker to alter the content of the data as they would need to do so on every node simultaneously. Each block of information is also stamped with a unique alphanumeric hash key which contains information about that block and all the ones which proceeded it. If one block is altered in any way, it will be immediately apparent by comparing it to others in the chain.
It is this element that gives blockchain its almost unlimited potential. The ability to transparently and securely track to process of a transaction — and not just financial transactions — through every stage of its journey can help every industry, from logistics to agriculture, add a new level of security to their operations.
State Farm
Seeing the potential in blockchain technology, State Farm has partnered with USAA to bring the innovative tech into its subrogation process — the right held by most insurance carriers to legally pursue a third party that caused a loss to an insured.
"Today, subrogation is a relatively manual, time-consuming process often requiring physical checks to be mailed on a claim-by-claim basis between insurers," said Innovation Executive for State Farm, Mike Fields. "In 2018 alone, the total amount of dollars demanded and issued through the subrogation process was over $9.6 Billion for all insurance carriers. You can imagine the time and resources required to complete these transactions."
The two companies have been testing the technology for the last year and recently moved to the point where they were ready to begin using real claims data to discover how blockchain could speed up the previously manual processes. To keep things extra secure during the testing phase, only claim numbers and dollar amounts are used, with no personal information being stored on the blockchain.
The idea is that through blockchain insurers will be able to deploy a netting solution where a time period can be decided on and all claims within that period can be netted off. Then, depending on which insurer owes more, a single payment can be made from one to the other for the net amount. The need for reconciliation is removed because the data is shared via blockchain's secure and transparent public ledger format.
"The blockchain solution we are working on has many potential benefits," added Vice President of Innovation for USAA, Ramon Lopez. "It helps us automate a manual process securely and creates a permanent transaction record of each payment which can easily be verified for accuracy. It also has the potential to decrease the amount of time for consumers to receive their deductible reimbursement."
Final Thoughts
Blockchain technology is providing industries new ways of carrying out data exchanges that are more secure and transparent than ever before. The ability to make these transactions without a central authority is enabling companies such as State Farm to better serve their customers by removing the bottlenecks and inefficiencies which come with outdated manual processes.
You can hear State Farm's Vice President of Product, Technology, and Customer Experience, Ritesh Saraf, speak at Digital Insurance 2020, taking place in July at the Renaissance Chicago, IL.
Download the agenda today for more information and insights.
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