Smart Contracts Poised to Impact the Future of Construction

Frederick D. Cruz and Seth Wamelink | Construction Executive | November 4, 2019

In August 2018, the State of Ohio passed legislation making it easier for businesses in Ohio, including the construction industry, to use blockchain technology in business transactions, which can result in significant savings and increased efficiency if used correctly. Specifically, Senate Bill 220 amends the Uniform Electronic Transactions Act (Ohio Rev. Code. 1306.01, et seq.) and ensures that records (or signatures) secured through blockchain are legally binding. With the enactment of this bill, Ohio has joined several other states to allow their businesses to take advantage of this budding technology. While the implications of this enactment are widespread, the use of “smart contracts” utilizing blockchain technology is particularly helpful in the construction industry to streamline certain processes and increase efficiency.

WHAT IS BLOCKCHAIN?

While blockchain technology is most commonly associated with cryptocurrency (e.g., Bitcoin), the technology has far greater applications as it can be used to “eliminate the middle-man” in a variety of transactions across a broad spectrum of industries. At its core, blockchain is a decentralized ledger that allows transacting parties to interact directly (i.e., peer-to-peer) in a secure manner.  Essentially, the blockchain “ledger” is where users record transactions. These transactions are then verified, viewed, and shared with others in the network. The information is stored across a peer network and allows for approved users to view the data simultaneously. It is often analogized to using GoogleDocs, where multiple people can access and edit the same document simultaneously.  While that is an easy comparison, blockchain itself is a bit more complex.

This decentralized system allows for greater security as the information—or the chain of information stored in the “blocks”—is less susceptible to breaches or hackers. It also provides a mechanism for validation of the information and prohibits previous blocks (or data inputs/information) from being tampered with or modified. As even smaller construction projects are becoming increasingly reliant on electronic data, cybersecurity is a large and often underappreciated risk, which blockchain can help mitigate. Indeed, cities across the nation are looking to blockchain as a means to improve efficiency and restore public trust, which includes using the underlying technology to develop “smart contracts.” Smart contracts can be especially useful in the construction industry. 

SMART CONTRACTS

A smart contract is a “self-executing” electronic agreement.  It is still a contract, which at its core is a compilation of terms and conditions that govern the relationship between contracting parties. Smart contracts simply streamline this process by enabling the automatic enforcement or execution of certain terms/provisions upon the happening of a condition precedent, i.e., a predetermined event. The functionality of the smart contract is often explained in terms of an “if/then” occurrence: If X occurs, then Y happens. The automation is what makes this tool efficient and revolutionary. In short, the contractual provisions are encoded within the electronic contract using an algorithm, and the contract is recorded onto the blockchain. From there, as previously agreed upon condition precedents begin to occur, the smart contract automatically begins executing the terms of the contract.

Importantly, smart contracts do not foreclose the use of standard provisions/clauses, such as in AIA contracts or ConsensusDocs, but rather the execution of certain provisions becomes automated. Moreover, not every term or condition of the contract is “coded” or automated. Standard provisions can and must remain. Rather, the substantive provisions are the terms that stand to benefit most from smart contracts (e.g. submittals, payments, scheduling, etc.). Once the provisions of the smart contract are agreed upon, the blockchain can take over. 

INDUSTRY IMPLICATIONS

With a growing shift to adopting and integrating this technology into construction projects, it is important to understand how smart contracts can be used to your advantage and streamline your business. A common use of smart contracts is to include provisions where the completion of certain activities trigger automatic payment from an escrow account where project funds are held. The triggering event could be application for payment approval, substantial completion, actual completion, warranty walkthrough, acceptance, etc.

For example, Prime Contractor needs 100,000 tons of gravel for its project to be delivered periodically in 100 ton increments. Prime Contractor can utilize a smart contract with Supplier to set up an automated process wherein a delivery of materials is automatically scheduled upon depletion of the current stocked materials. Taking this a step further, Prime Contractor could install sensors to monitor the inventory and automatically schedule deliveries once inventory drops below a certain level. The administrative tasks are therefore completed electronically and through a secured blockchain. This administrative automation leads to further efficiency in time, cost and use of resources (both human and physical).

POTENTIAL DRAWBACKS AND BEST PRACTICES

It is important to know the basics of blockchain and smart contracts before being faced with them for the first time on an upcoming project. Negotiation of these contracts are just as, if not more, important than a typical contract because some items of work do not lend themselves to automation as well as others. Blockchain has many benefits, but as with any new technology, it has unique drawbacks and risks. For example, the use of a smart contract cannot eliminate the potential for human error when executing or inputting triggering events. One way to minimize any such risks is assuring that the smart contract, and underlying software, affords the parties the opportunity to retroactively correct, or claw-back, any inadvertent mistake that results from automation, particularly regarding payment. This allows your company to determine the best and most efficient use of this technology while minimizing the risk inherent with smart contracts. There is no question that this technology can lead to greater efficiency and, thus, greater profits, but it is important to negotiate any smart contract in a way that minimizes any risks posed by automation.

Blockchain and Smart Contracts May Solve the Unsolvable Problem in Construction

Thomas D. Franklin and Brian R. Gaudet | Kilpatrick Townsend & Stockton | August 22, 2019

Every construction project, from contract negotiation through the payment of the final pay application, suffers from the same conundrum born out of every parties’ desire for certainty and finality. That problem is the issue of the exchange of lien waivers for payment. The issue is those parties lower in the construction chain are asked to provide unconditional lien waivers (swearing that they have already been paid) as part of their request to be paid. This happens all the way up the chain until you reach the top. It is borne out of the project financer’s desire to make sure that when they issue a progress or final draw on funding that they are achieving finality on costs of construction for everything that transpired prior to that draw. This, of course, helps insure that their investment in the project is not attacked by mechanics and materialmen’s liens filed by unpaid subcontractors and suppliers down the chain. (While the financiers typically have a superior priority in the property, the financiers would rather that the borrower occupy the property and pay them back in accordance with the repayment schedule, than to foreclose, fight over priority, and suffer loss from an insufficient recovery on foreclosure or to have to hold the property for some extended period of time.)

Several states have passed laws, and in other places, parties negotiate the exchange of a conditional release in exchange for a check, which would be followed up, in theory, with an unconditional release when the check is honored by the payor bank and becomes “good funds.” A conditional release is a compromise position that is sometimes rejected and it has its own problems. Rather than relying on a single executed document, a party would need to also have proof of the funding of the check in order to know whether it may rely on the conditional release or not. This need to look to external sources is less than ideal from the finance side.

There are other imperfect solutions to this problem up until blockchain and smart contracts, which may be the perfect solution. One solution was to have the prime contractor prepay its subcontractors prior to submitting what essentially would be a request for reimbursement from the Owner for what was already spent. The subcontractors, as a precondition to receiving that payment, would have already had to prepay their lower tiered subcontractors and suppliers. In theory, that solution works. In practice, it fails. The reason it fails is that the parties with the least financial wherewithal are asked to prefund a significant payment and hope for a timely reimbursement. The larger the project, and the higher the monthly burn rate on expenditures, the more unlikely you are to succeed in this pre-payment paradigm.

Another solution, which is even more impractical in practice, is for every party on the construction project who is expected to receive a portion of a particular monthly draw to assemble in a large conference room and exchange cash for unconditional releases in an elaborate closing ceremony, each and every month. This would permit the exchange of hard currency for unconditional releases, seemingly satisfying the finance side’s desire for finality and certainty, as well as the working side’s desire to make sure they do not end up financing the project themselves. There are obvious problems with this scenario, including the logistics and time necessary to perform it, and the security risks. Through the use of blockchain, however, the parties can accomplish the same thing electronically.

What are blockchain and smart contracts? Blockchain is a cryptographic technique to validate transactions for each transaction so that there is trust in what transpired at any given moment, because the algorithm is so strong. A distributed ledger (it exists in multiple locations) for the blockchain provides an unhackable solution, as many parties possess a copy, and it would be impractical to hack all of them to change the ledger. Some blockchains integrate smart contract capability that uses software code to automatically enforce one or more contract terms before the underlying transaction takes effect. A smart contract could be used in conjunction with, or to replace, project management/finance software to set up rules for the execution of a transaction or series of transactions. This can provide enhanced visibility or other functionality in a secured way with a distributed ledger and algorithmic security. Since many possess a copy of the blockchain and understand the underlying rules of the smart contract, there are no secrets and no chance at manipulation.

How would this work to solve the problem discussed above, is as follows. Using software with controlled access to the blockchain, the parties participating on the construction project would register and be invited into the project finance database. Parties lower in the chain could upload their unconditional releases, which the system would hold in escrow. The project financier (owner or lender) would pre-load the draw payment on its end either just prior to funding or before the next month of work began, so that the parties performing work could be assured that payment was locked in the system. Once the system received all of the unconditional releases required for the draw, the funding would happen through some combination of the smart contract or traditional software to enforce the rules so that the blockchain records the compliance with a perfect audit trail. The payment would not just flow from the bank to the owner. The entire distribution could simultaneously occur, with the payment simultaneously flowing throughout the entire matrix of those expecting payment. The suppliers and subcontractors would be paid at the same instance the draw was funded to the general contractor. The blockchain would be used to securely track and distribute the funding, as all parties can be assured the prerequisite conditions for proceeding were met. Because of its distributed ledger system, there would not be the ability of one party to manipulate the system. The releases could be created through the software system or smart contracts so that a party could not simply upload a blank page to trick the system. There would still need to be human oversight in determining who should be a participant in payment system, as well as validation of whether work was performed, and at what percent of completion. As this approach catches on over time, anyone who supplies or provides labor to a project would know to register on the project to secure its payment.

Certainly there are still “What ifs…” to be worked through on a per project basis, but the fundamental problem has been solved with technology that is secure, unhackable, transparent, and lightning fast.

How Blockchain and Smart Contracts will Change the Face of Insurance in the U.S.

Theodore (Ted) J. Mlynar andRobert M. Fettman | Hogan Lovells | May 23, 2019

In the last several years, we have seen a new crop of digital products and services enter the lexicon of the insurance industry. And with these, inevitably comes a myriad array of insurance regulatory issues. Usage-based insurance, peer-to-peer insurance, machine-learning algorithms, robo-advisory insurance processes, blockchain-based insurance, and the Internet of Things present many challenges. Insurtech has permeated virtually every aspect of the insurance industry.

Regulators, technology providers and insurance companies are frequently grappling with questions like:

  • Do digital marketing and advertising activities trigger insurance producer licensing requirements?
  • Does the provision of value-added services violate state anti-rebating laws?
  • How can insurance referrals be compensated without triggering insurance regulations?

The ability of AI and machine-learning to analyse data at very granular levels has regulators concerned about consumer protection.

Algorithms that utilize geographical data or other individualized information may effectively create proxies for sensitive characteristics such as race, religion, gender, etc. prohibited from consideration by insurance law.

On the one hand, the application of machine-learning to price risk could help insurers reduce moral hazard and adverse selection inherent in selling insurance broadly.

On the other hand, the narrow tailoring of risk and the creation of highly customized policies reflecting unique characteristics of an insured could undermine the risk-pooling function of insurance and lead to groups or categories of risk becoming uninsurable in the private insurance marketplace.

Insurtech firms involved in underwriting and pricing functions must appreciate the regulatory landscape governing insurance product development or risk running afoul of multiple insurance regulations.

For example, a company providing a model that impacts rate filings may be acting as an advisory or rating organization that requires licensure under state law.

And, even where state law may be unclear how far licensing requirements extend, regulators nevertheless may insist on some degree of oversight as a condition to approving an insurer’s rate filings.

Regulators are scrutinizing the potential anticompetitive effects of Insurtech vendors that supply similar data and models to multiple insurers serving a particular market. There is a concern also that non-traditional information sources may provide proxies for prohibited discriminatory factors.

In parallel, the National Association of Insurance Commissioners (NAIC) is compiling best practices for regulators to use in reviewing insurance company filings containing predictive models. And such “best” practices may not be the “most streamlined.”

One draft under consideration identified 16 best practices to apply and 92 pieces of information a regulator should consider.

The insurance actuarial modelling world is also benefiting from new forms of data collection and analysis, including data-mining, statistical modelling, and machine-learning. It has become increasingly challenging for insurance regulators to evaluate filed rate plans that incorporate sophisticated technology-based predictive models.

To address these issues, insurance regulators are considering methods of field-testing the new technologies in controlled environments similar to the FinTech “sandbox” concepts implemented in the UK and other countries.

Insurers and Insurtech firms that communicate with regulators early in the development of their offerings will be the ones most likely to achieve compliant success.

Blockchain

Many see tremendous potential for blockchain technology in the insurance industry, especially the ability to bring efficiencies and cost savings to existing insurance processes.

Data management and claims administration are ripe for significant improvement.

While there may be some ambiguity in the application of state insurance laws to aspects of blockchain technology, there are also opportunities for innovative legal and technical solutions.

Of course, policy information and personal customer data residing on a blockchain will need to comply with existing privacy and data protection regulations. State insurance laws generally require an insurer’s books and records to be maintained in state and be available to the state regulator for inspection and audit.

It is easy to imagine encrypted blockchain technology that is designed to provide such compliant storage.

But even more interesting (and perhaps unsettling to some) is the possibility of significantly streamlining compliance efforts by allowing a state regulator to directly monitor transactions in real-time via a node on the insurer’s blockchain.

Smart contracts

Smart contracts implemented in connection with a blockchain offer even more potential benefits to the insurance industry.

For insureds, the implementation of smart contracts could remove key pain points in the claims filing process while reducing claims handling expenses for insurers.

A good example of smart contracts’ potential is in connection with parametric flight delay insurance policies that run on a blockchain.

The insurance process can be fully automated with a smart contract both determining whether customers are eligible for indemnification and managing the payments.

Customers on a substantially delayed flight would benefit from automatically receiving their payout when they (finally) arrive at their destination. No claim need be filed.

The claims-free, guaranteed-payout features achievable with smart contracts certainly add value for insureds and may provide opportunities for premium pricing for insurers.

As smart contracts and blockchain technology reduce administrative, compliance and claims-handling costs, certain traditionally uneconomic insurance products, such as microinsurance, may become realistically viable.

However, the fundamental nature of smart contracts presents a number of regulatory and compliance hurdles under existing insurance laws.

At the threshold, a determination, on a case by-case basis, is needed whether smart contracts with insurance-like features are actually subject to regulation as “insurance” contracts under state law, or are they derivative contracts subject to other regulatory regimes.

If it is a regulated “insurance” product, are automated payments via smart contract allowed, particularly if funds are to be escrowed?

And, can those payments be made in a cryptocurrency? Will the answer change if that cryptocurrency is pegged to, or floats against, the U.S. dollar currency used to pay the insurance premiums?

State laws prescribing claims-handling procedures will also need to be considered carefully. Much like other algorithmic approaches, a smart contract’s automated claim denial may be challenged as a substantive design flaw or as an inadvertent programming error.

Similarly, the immutable and irreversible nature of smart contracts poses an interesting challenge in the context of insurance delinquency proceedings.

Conclusion

The implementation of Insurtech, AI, machine-learning, blockchain technology and smart contracts in insurance is growing. New products, new markets, and new efficiencies are within sight, if not already within grasp. Insurers and regulators will be wrestling with state laws, and looking for ways to collaborate with each other, as each innovation tests the boundaries of existing regulatory regimes.

Next steps

You can find out more about other recent developements in the insurance industry in our Insurance Horizons 2019 brochure, which also covers topics such as insurance business transfers in the U.S., data protection after the GDPR and preparing for Brexit and international initiatives on sustainability and climate change.

The Trick to Getting Blockchain to Work for Insurance

Jason Contant | Canadian Underwriter | July 30, 2018

The trick to getting blockchain to work in the insurance space is getting all the players in the market to align and agree on common standards and a way to govern the blockchain, Aon Benfield’s chief information officer said Friday.

“There’s a massive efficiency play there if you can get alignment across the different parties in the chain,” Bob Olson said in an interview. “That’s always the big trick: can you get all the players in the chain to align and agree on common standards [and] a common way to govern the blockchain? That’s kind of what the industry is going through now – to try and figure out which consortium, which group is going to get the right momentum behind them [and then] get some standards built.”

Kelly Superczynski, head of Aon Benfield Analytics for the Europe, Middle East and Africa region, agreed that the benefits of blockchain include efficiency and trying to get some costs out of the equation. As it currently stands, there is a “long chain of people involved” in the insurance process, each with their own system, whether it’s a carrier, managing general agent, broker, reinsurance broker or reinsurer, Olson added. That’s a very labour-intensive kind of process that involves re-keying and revalidation of information, trying to sync information and get claims paid and reconciled.

“But having a shared distributed ledger allows you to effectively, in the ideal world, actually enter it once, have other people supplement and add on throughout the data chain, but not having to do all this re-keying and reconciliation through the whole process,” Olson said.

At this point, though, “nobody really has it working in any kind of scale at this point; it’s still a lot of R&D,” Olson said. (Case in point is Canada’s largest insurer, Intact Insurance, which told Canadian Underwriter recently that it was exploring blockchain’s potential.)

Superczynski said that given expense ratio challenges across the industry, “there’s a recognition across the board that we need to reduce expenses, so using something like blockchain or other technology like AI are high up on the list of carriers’ initiatives because they are trying to figure out how we can get some costs out of the chain.”

Blockchain has a number of potential applications, including travel and marine insurance, she said. Marine is a very paper-heavy industry and there are a lot of endorsements and amendments as goods are physically passed through the chain. “Blockchain people see that as having a significant opportunity in the marine space because of the amount of paper that goes into just moving goods across the world,” Superczynski said.

For Marc Boone, senior director of IT with Aon, distributed ledger technology is the future. “Whether blockchain is the solution for how to transact more seamlessly across different parties or whether it’s some evolution of blockchain, it’s hard to say,” he said. “It’s going to evolve into a blockchain 2.0 or distributed ledger 2.0 or some other tech, but it is coming. The key thing is there is no doubt that there is going to be more data in the future coming from more sources and it’s going to be more joined up than it is today.”

The comments follow the release of the article Blockchain: Mechanics and Magic earlier this month, written by risk academic and former CEO of Aon Benfield Analytics, Stephen Mildenhall. Aon said in a press release outlining the article that “while commentators often tout blockchain as a solution to the insurance industry’s processing and back-office inefficiencies, they are missing its true potential: blockchain technology allows for the re-democratization of data – providing access to data where and when required – and for the reassertion of the individual’s control over their private data.”

In this regard, the article said, insurers are well-positioned to provide the infrastructure and alternative revenue model that will replaced “outmoded and insecure centralized networks” with distributed blockchain solutions. “According to this study, this ‘revolutionary model’ represents the true potential of the blockchain for the insurance industry.”

Blockchain: Mechanics and Magic

Stephen J. Mildenhall | Aon

The Blockchain cures all ails. It is an immutable (unchangeable) and unhackable database. It lowers transaction costs and enables trust between strangers. It unshackles us from authority. It will revolutionize insurance: Executives everywhere must pay attention. Blockchain is the new plastic. Or so the myth goes.

Numerous articles have explained how using a blockchain will lower costs, increase profitability, and produce a clear competitive advantage for insurers. Fewer articles cover blockchain mechanics and magic—yes, it contains some magic. Executives need to have a basic understanding of the mechanics and an appreciation of the magic in order to assess the applicability of blockchains to their insurance business problems. This article will step back from the hype and explain how a blockchain works. It will highlight some surprising capabilities and debunk some confusing myths and inaccuracies.

Blockchain is a Database

A blockchain is a database. Blockchain databases are generally distributed, that is, stored on multiple machines rather than held by a single authority.

Blockchain databases store records that can be thought of as transactions because they have a temporal order: later transactions can depend on earlier ones. The importance of transactional databases to insurance is obvious.

Individual records are stored in blocks that are chained together through an index, hence the name. The data in each block is called the payload. The payload can be structured data, such as details of a financial transaction or an insurance policy, or unstructured data, such as an image, video, or a PDF file of an insurance contract. Each block is given an index that is used to locate it. (SQL databases work this way. Even though data is presented as a table it is stored in indexed blocks.) The chain arises by including the index of the preceding block as part of data payload on each block. Chaining enforces the temporal order of the database. Given the index of the latest block a user can pull out an ordered list of blocks from the database by following the index chain.

Database users have three concerns: does the data have integrity, is the data valid, and is the data secure? Blockchains offer innovative solutions to these three concerns.

Integrity and Hashes

Does an extract from a database faithfully match the original? That is, does it have integrity. Blockchains use hash functions, a magical mathematical construct, to ensure database integrity.

hash function is a deterministic algorithm that will reduce an input of arbitrary length (e.g. the data on a block) to a fixed length output. A familiar example of a hash function is to concatenate the first five letters of your last name (padded if necessary) and the first letter of your first name, a hash beloved of IT departments creating user names. However, as every J. Smith knows, this hash has a problem: many different names can map to the same hash, giving a hash collision. Here’s our first magical ingredient: there exist hash functions where the probability of a hash collision is extremely low. Given two different inputs the probability the hash produces the same output is negligible. Negligible not as-in not in one hundred, but as-in the chances of a collision within one billion messages is less than the probability of picking a particular atom in the universe. The SHA256 algorithm is an example of such a hash function. It produces a 64 digit hexadecimal output, equivalent to a 77 digit decimal number.

How does a blockchain use the SHA256 hash function to ensure integrity? It is surprisingly simple. It uses the hash of the block payload as the index. Remember the payload includes the index of the previous block, as well as whatever data is stored in the block. The integrity of data download from the database is easy to check: hash the payload and compare the answer to the index of the block. If the two match you can be very confident (not quite mathematically certain, but certain enough) your extract matches the original, that is, your copy has integrity. If you know the hash-index of the most recent card in the database you can determine the integrity of a copy of the entire database by recursively computing hashes. One 77 digit decimal number is sufficient to determine if a copy of the entire 184 gigabyte Bitcoin blockchain has integrity!

Validity and Nonces

Database integrity is important, but an accurate copy of invalid data is useless. Users are also concerned their data is valid: that it is legally or officially binding and acceptable. Data validity is usually enforced by a trusted authority such as a bank, employer, insurer, or government agency. The second magical capability of a blockchain is to enable validity without an authority: to enable distributed validation of new database records.

Given a blockchain it is easy to make an invalid copy with integrity: change a block, for example to credit your bank account, and then recompute all the block index hashes. The SHA256 function is very fast to evaluate so this is a quick and easy change. There are now two different copies of the database which both have integrity. Which is valid?

Validity is an incremental problem: given a copy of the database which all users agree is valid, how should the next block of transactions be confirmed and appended? The new block needs to be consistent with the existing transactions and then “locked-in” somehow, so it becomes immutable, or at least very hard to change.

The Bitcoin network enforces validity through a proof-of-work consensus mechanism. The process has several steps. First, a so-called miner checks new transactions to ensure each is valid by looking at the existing database, which provides a record of who owns what. This stage forestalls double-spending because a miner will only allow a Bitcoin to be spent once. The miner knows that others will independently check their work, so cheating will be detected and their mining in vain. Next the miner combines a number of valid transactions into a block payload. Third, the miner computes the hash-index for the block. This is done hashing the payload concatenated with an additional number, called a nonce (number used once). The nonce is selected so that the resulting hash is smaller than a certain threshold (the block difficulty). Bitcoin miners try to find these nonces through brute-force, by trying different nonces until they chance upon one which produces a small enough hash. The brute-force mining process consumes a massive amount of electricity—another popular fact in Bitcoin press coverage! Fourth, the proposed block is transmitted to other users. If they agree it is valid it can be added to the chain and the process starts over. Checking if a block is valid is very quick—once you have been given the nonce. Miners are rewarded with newly created Bitcoins for their mining efforts.

Why does this process create an (almost) immutable record? Suppose I want to change an old block. I can do that but it takes time, the time to find the nonce for each block I want to change. As this time is elapsing, new blocks are being created. Unless I control the majority of the mining computing power (hence: 51 percent attack) I can never catch up with the current block. Thus it is practically impossible for me to go back and alter the blockchain.

Security and Encryption

A distributed database, where everyone has access to all the underlying records, appears inconsistent with good security. Blockchains use encryption to ensure security. The data payloads on each block are public but encrypted. Without a key issued by the owner of the data it is impossible (again, not mathematically impossible, but practically impossible) to extract the underlying information.

Given the purported security of a blockchain why are there so many news reports of Bitcoin hacks and thefts? Encryption is an unbreakable lock—but all locks have a key. For Bitcoin the key is simply a number. And that number must be stored. Steal the number and you control the Bitcoin. All reported blockchain hacks involve the theft of keys, not a breaking of the underlying encryption. If individuals hold their own keys and there are no extensive databases of keys exposed to hackers then mass data breaches cannot occur. Security has been distributed.

Encrypted security technology offers some magical possibilities. It is feasible to issue security keys that allow one-time access to data. And keys that expire. To grant a third party access to check my credit record using a blockchain credit bureau I would issue a one-time, read-only key. The party would access my record at a point in time but would not be able to use the same key twice. Today, of course, I have to reveal my social security number and other sensitive information and to trust the recipient only looks at my record once. There is enormous potential for using blockchain technology to return ownership and control of private information to individuals.

Applications

Commentators often tout blockchains as a solution to the insurance industry’s processing and back-office inefficiencies. But this is a rather narrow view, and one which completely misses its true potential for insurers.

The internet, which has delivered free access to vast troves of information, has paradoxically created a Trust Vacuum. Alleged instances of election hacking highlight the need for identity verification. The Equifax cyber hack reveals the weaknesses of centrally controlled repositories of private information. Blockchain technology allows us to re-democratize data and reassert the individual’s control over their private data. To enable this will require infrastructure and an alternative revenue model. Insurers are well positioned to provide these services and to profit from the Trust Vacuum, stepping in to replace outmoded and insecure centralized networks with distributed blockchain solutions. This revolutionary model represents the true potential of the blockchain for our industry.