The Institutes RiskStream Collaborative (formerly RiskBlock) has researched the financial impact of insurance blockchain adoption. The consortium boasts 38 insurers, reinsurers and brokers. RiskStream is getting ready to launch its first two solutions for proof of auto insurance and first notice of loss (FNOL) following a car accident. The estimated savings of the two solutions for the industry is up to $277 million in year three.
“By implementing blockchain applications in the U.S. market, and taking the RiskStream Collaborative’s network growth into account, members could save between $19 million and $68 million in the first year of use, between $60 million and $190 million in year two, and between $99 million and $277 million in year three,” said Pat Schmid, RiskStream VP.
The predicted savings assume growing adoption of the applications by RiskStream’s members, with rates in the first three years of 22%, 59% and 80%.
However, the research focuses on the financial benefit to members. But both applications will improve the experience for drivers. The lower end estimates exclude savings from customer satisfaction improvements.
Proof of Insurance savings
RiskStream analyzed the potential savings of Proof of Insurance in categories. By far the most significant cost reduction relates to the need for insurance companies to comply with different state auto insurance verification systems. RiskStream estimates that this compliance cost for all insurers could be reduced by up to $70 million annually. Other savings relate to paper card printing, data storage, and reducing the number of uninsured drivers.
The overall estimated savings for year one to three are $9.5 million, $34.1 million and $64.4 million respectively. These figures take into account growing RiskStream member adoption and that each state needs to sign up and they won’t all join at the same time. In terms of assumed state adoption, it could be optimistic at 40% in year one, followed 60% and 90% in years two and three.
First Notice of Loss savings
Turning to the other application, first notice of loss, RiskStream envisions up to $43 million in annual savings.
“Today’s first notice of loss process is complex, inefficient, slow and expensive for the wide range of parties involved,” said Christopher McDaniel, RiskStream president. “With more than 8 million personal auto claims filed each year in the U.S., blockchain can remove countless steps in this equation while reducing costs and providing a better customer experience.”
If 80% of RiskStream members adopt the solution by year three, there will be a $34.6 million savings. It quotes Accenture research that found it takes on average 15 minutes for insurers to log the initial claim. And according to RiskStream members, it takes 12 minutes to share claim information between insurers.
Accenture’s analysis shows that using RiskStream’s solution, three minutes will be saved on the driver’s claim intake. And the time for carrier-to-carrier sharing will drop by 6 minutes. That’s a total saving of 1.5 million work hours. This extrapolates to a cost reduction of $14.4 million on claims intake and $28.8 million on insurer-to-insurer data sharing.
RiskStream believes that its blockchain solutions will also impact customer satisfaction. It says for every 1 point improvement in J.D. Powers customer satisfaction score, there’s a 0.136 percent reduction in auto personal lines expense ratios. That translates to a $222 million annual expense reduction.
Assuming 80% of members adopt the solution in year three, that’s a $178 million saving. Additionally, in year three, there are the savings of $64.4 million from Proof of Insurance and $34.6 million from first notice of loss.
So without an improvement in customer satisfaction, the savings will be $99 million, but with the one point J.D. score improvement, savings will climb to $277 million by year three.
“These findings are only scratching the surface in terms of what blockchain applications can bring the insurance industry,” said McDaniel. “Blockchain can provide insurers with greater trust and auditability, increased automation, lower administrative costs and the complete elimination of fraud.”