Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health insuran...

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager Chris Harrigan

UPDATED: Sep 5, 2020

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Key takeaways...

  • Blockchain transactions are efficient, transparent, and secure because they utilize cybersecurity protocols
  • The difficulty in understanding how to quantify, predict, and monetize blockchain technology is the main reason why companies are reluctant to adopt it
  • Using the new technology would allow insurance companies to collect real-time data and analysis

In every industry in the world, companies are constantly looking to get an edge over their competition. Whether through innovation or exceptional delivery of service, businesses are looking for tangible means of distinguishing themselves from their rivals.

They want to be industry disruptors or market game-changers. Think of what Uber and Lyft did to the transportation industry or the potential impact of self-driving cars on the auto industry.

Blockchain technology is a similar disruptor.

Since the arrival and meteoric rise of Bitcoin and other cryptocurrencies, blockchain — the technology behind the digital currency — has become part of the pop culture lexicon. Politicians, activists, academics, and investors alike have developed a fascination for this “mysterious” recordkeeping system.

But what exactly is blockchain? How does it work? What is its impact on the insurance industry?

What Blockchain Is

According to Merriam-Webster, “blockchain is a digital database containing information (such as records of financial transactions) that can be simultaneously used and shared within a large decentralized, publicly accessible network.”

In layman’s terms, it is a decentralized, digital database.

Blockchain transactions are characterized by the efficiency, transparency, and security that is made possible through utilizing public ledgers and top-notch cybersecurity protocols. The public sharing and immutability of the records captured in blockchain create a heightened level of trust for business transactions.

As the IBM Blockchain puts it, “Blockchain creates trust because it represents a shared record of the truth. Data that everyone can believe in will help power other new technologies that dramatically increase efficiency, transparency, and confidence.”

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How Blockchain Works

Blocks on the blockchain are made up of digital pieces of information that are comprised of the following three parts:

  • Data – The type of data is dependent on the type of transaction. Typically, the data contains information about the sender, the receiver, the date and time of the transaction, and the amount of the purchase.
  • Hash – In blockchain parlance, hash is the equivalent of a fingerprint or signature. It identifies a block and all of its content, and it is always distinct.
  • Hash of the previous block – This is the key piece of the blockchain. Because the hash of the previous block is contained in the hash of the new block, the blocks in the chain build on each other. Without this component, there would be no connection and chronology between each block, and the chain would be broken.

Each hash is unique and must meet certain cryptographic conditions. Once this occurs, a block is formed and added to the chain.

In order to tamper with this process, each earlier block — of which there are nearly a million — would require the cryptographic codes to be re-mined, which is impossible.

Tampering with a block within a blockchain causes the hash of the block to change. That change, which originally pointed to the first block’s hash, would invalidate the following block.

In fact, changing a single block makes all the subsequent blocks invalid. This fortified structure gives the blockchain an increased level of security.

How Blockchain Will Impact the Insurance Industry

Despite being several centuries old, the insurance industry often lags when it comes to technological innovation and user-friendly protocols and policies. The longevity of the industry has done little to expedite the efficiency and practicality of the way many insurers do business.

Whether filling out an application for life or health insurance or filing a claim after a car accident, the processes are often time-consuming and rife with human error.

However, many consumers and entrepreneurs are hoping that blockchain can be a workable and lucrative solution to some of the outdated and tedious methods that have long plagued insurance companies.

Of the potential marriage between blockchain and the insurance industry, Andrea Tinianow, CIO for Global Kompass Strategies, says: “One hopes that the day will come where traditional insurers and entrepreneurs will come together to exchange information and value on a blockchain so that everyone can realize and enjoy the true potential that blockchain technology has to offer insurers and their insureds.”

Insurance companies are risk-averse by nature and will not, therefore, become early adopters of blockchain technology without having a compelling financial reason to do so.

The relative newness of blockchain makes it difficult for companies to know how to quantify, predict, and monetize its considerable uses in their day-to-day procedures.

However, this hasn’t stopped companies from exploring the possible benefits and obstacles presented by this industry disruptor.


  • More efficient processes – Blockchain can exponentially streamline formerly time-consuming activities such as filling out applications, filing claims, and reconciliations.
  • Increased trust and transparency – The cryptography in blockchain guarantees the security of the transactions by authenticating and verifying each sequence to ensure customer privacy.
  • Smart contracts enhancing claims processing – According to the Harvard Business Review, “There is approximately $7.4 billion in unclaimed life insurance money from insured people passing away and their beneficiaries being unable to connect the dots. A blockchain-based registry could help address this challenge while retaining anonymity and improving security as a distributed public record.”

Smart contracts allow for real-time data collection and analysis, which will significantly decrease the amount of time it takes to process claims and issue payouts to beneficiaries.

These contracts can be programmed to contain code that automatically executes a transaction when the predefined conditions have been satisfied.


  • Lack of regulatory consensus or direction – Despite being one of the most heavily regulated and scrutinized industries, the insurance laws vary widely from state to state. Though the National Association of Insurance Commissioners (NAIC) produces a volume of Model Laws as a guideline for state commissioners, each individual state has the authority to determine its own set of insurance laws. This lack of uniformity makes it less likely that companies would invest substantial time and resources in technology like blockchain, in which they’ve been given little to no regulatory guidance or directives.
  • Fodder for a cyberattack – The global blockchain market is predicted to be worth tens of billions of dollars by the year 2024. With the number of new users growing daily, the lucrative business of blockchain is becoming more attractive and vulnerable to cyberattacks.
  • Cost of operations – Blockchain, though increasing in its popularity, requires a lot of energy for its mining and is a costly expense. At the outset, it will take a significant initial investment for insurance companies to adopt this new technology into everyday processes without drawing the ire of environmentalists. Dr. Jonathan Foley, executive director of Project Drawdown, a vocal critic of blockchain technology, claims, “I think the best thing blockchain can do to help the environment is to simply not exist.”

The insurance industry has a tremendous opportunity to improve the ease of doing business and increase their profit margins with the strategic implementation of disruptive blockchain technology.

The opportunity does not come without risk; however, failure to adopt such game-changing innovation brings with it the possibility of becoming Blockbuster in the age of Netflix.