2017 RIMS

Blockchain Pros and Cons

If barriers to implementation are brought down, blockchain offers potential for financial institutions.
By: | April 25, 2017 • 4 min read

With hackers growing more sophisticated every day, companies and their customers could benefit from some bulked-up cyber defenses.

Blockchain technology is one innovation trying to provide a solution against hacking and fraud, but its drawbacks may stall implementation for the foreseeable future.

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“[Blockchain] is there; everyone is aware of it. It will pop one of these days, but no one knows how to insure it. It takes time for insurance to catch up because there’s no loss history,” said Jimmy Kirtland, VP, corporate risk management, Voya Financial, presenting on the topic at the RIMS 2017 conference in Philadelphia.

Currently, financial transactions are recorded through a central authority like a bank, which keeps one ledger for all parties involved. It provides a reliable record of ownership and asset flows, but it’s easily hackable. A cyber criminal only needs to gain access to that one ledger to place every party – and all of their transaction data – at risk.

Blockchain, on the other hand, is an example of a distributed ledger. There’s no central authority, and every participant has their own copy.

Brian Scarbrough, partner, Jenner & Block LLP, compared blockchain to “one giant interactive and global spreadsheet,” which displays real-time changes so every copy is identical, and which no single user controls.

The advantage of this distributed model is that it’s much harder to hack or manipulate.

In a blockchain model, transactions are organized into discrete “blocks,” which are time stamped, encrypted and linked to the previous block, creating the chain. Each block can only be added to the chain if there is consensus among participants that it has been verified.

Without consensus, no transaction is recorded.

So, if a hacker gains access to one of the local copies of the ledger and tries to retroactively change a transaction, it means he must also change every block that comes after that transaction. But that creates a split in the chain, and other participants’ copies will differ from the hacked ledger. Because consensus is required, the participants in a blockchain ledger would easily be able to identify and reject the change.

Brian Scarbrough, Partner, Jenner & Block LLP

“Cryptography is used to validate and confirm transactions,” Scarbrough said.

Through complex mathematical equations, cryptography encodes transaction data. It also acts to cut out trusted intermediaries that normally do data verification and encryption.

“Cryptography solves the threat of multiple networks being hacked,” Scarbrough said. “Instead of trusting one central party, users trust a network of participants that keep each other honest through mass collaboration because they have to vote on each transaction to be added to blockchain, and cryptography aids that process.”

Insurance Impact

Blockchain technology, through its ability to track and store data including policy applications and renewals, can potentially help to streamline the underwriting process. Records of ownership could also prove useful in insurance disputes and in claims handling.

However, running encryption and decryption software 24/7 requires a lot of energy and resources.

“Running blockchain around the clock requires massive amounts of electricity and is very capital intensive,” Kirtland said. There is also a lack of mature infrastructure, lack of scalability, the potential for fraud through collusion, and unanswered questions around regulation and legality.

There’s also uncertainty around how cyber coverage would respond to failures of a blockchain system. Some cyber policies have only just begun to incorporate language addressing bitcoin, which is an example of blockchain technology.

“Running blockchain around the clock requires massive amounts of electricity and is very capital intensive.” — Jimmy Kirtland, VP, corporate risk management, Voya Financial

Bitcoin incentivizes people to invest their resources in the data mining and hashing necessary to keep blockchain transactions going by rewarding them with bitcoins. With other blockchain applications, though, incentives are still lacking.

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As demonstrated through the number and participation of session attendees, blockchain is garnering a lot of interest, but brings up just as many questions.

Audience members had uncertainties around the technical aspects, and the technology’s exposure to hacking. But if the industry can gain clarity around those uncertainties, and if cost of implementation goes down, blockchain models could drastically change the way insurers and other financial institutions do business.

Additional stories from RIMS 2017:

Embrace the Internet of Things

Risk managers can use IoT for data analytics and other risk mitigation needs, but connected devices also offer a multitude of exposures.

Feeling Unprepared to Deal With Risks

Damage to brand and reputation ranked as the top risk concern of risk managers throughout the world.

Reviewing Medical Marijuana Claims

Liberty Mutual appears to be the first carrier to create a workflow process for evaluating medical marijuana expense reimbursement requests.

Cyber Threat Will Get More Difficult

Companies should focus on response, resiliency and recovery when it comes to cyber risks.

RIMS Conference Held in Birthplace of Insurance in US

Carriers continue their vital role of helping insureds mitigate risks and promote safety.

Resilience in Face of Cyber

New cyber model platforms will help insurers better manage aggregation risk within their books of business.

Katie Siegel is a staff writer at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

After 20 years in the business, Navy Pier’s Director of Risk Management values her relationships in the industry more than ever.
By: | June 1, 2017 • 4 min read

R&I: What was your first job?

Working at Dominick’s Finer Foods bagging groceries. Shortly after I was hired, I was promoted to [cashier] and then to a management position. It taught me great responsibility and it helped me develop the leadership skills I still carry today.

R&I: How did you come to work in risk management?

While working for Hyatt Regency McCormick Place Hotel, one of my responsibilities was to oversee the administration of claims. This led to a business relationship with the director of risk management of the organization who actually owned the property. Ultimately, a position became available in her department and the rest is history.

R&I: What is the risk management community doing right?

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The risk management community is doing a phenomenal job in professional development and creating great opportunities for risk managers to network. The development of relationships in this industry is vitally important and by providing opportunities for risk managers to come together and speak about their experiences and challenges is what enables many of us to be able to do our jobs even more effectively.

R&I: What could the risk management community be doing a better job of?

Attracting, educating and retaining young talent. There is this preconceived notion that the insurance industry and risk management are boring and there could be nothing further from the truth.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

In my 20 years in the industry, the biggest change in risk management and the insurance industry are the various types of risk we look to insure against. Many risks that exist today were not even on our radar 20 years ago.

Gina Kirchner, director of risk management, Navy Pier Inc.

R&I: What insurance carrier do you have the highest opinion of?

FM Global. They have been our property carrier for a great number of years and in my opinion are the best in the business.

R&I: Are you optimistic about the US economy or pessimistic and why?

I am optimistic that policies will be put in place with the new administration that will be good for the economy and business.

R&I: What emerging commercial risk most concerns you?

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The commercial risks that are of most concern to me are cyber risks, business interruption, and any form of a health epidemic on a global scale. We are dealing with new exposures and new risks that we are truly not ready for.

R&I: Who is your mentor and why?

My mother has played a significant role in shaping my ideals and values. She truly instilled a very strong work ethic in me. However, there are many men and women in business who have mentored me and have had a significant impact on me and my career as well.

R&I: What have you accomplished that you are proudest of?

I am most proud of making the decision a couple of years ago to return to school and obtain my [MBA]. It took a lot of prayer, dedication and determination to accomplish this while still working a full time job, being involved in my church, studying abroad and maintaining a household.

R&I: What is your favorite book or movie?

“Heaven Is For Real” by Todd Burpo and Lynn Vincent. I loved the book and the movie.

R&I: What’s the best restaurant you’ve ever eaten at?

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A French restaurant in Paris, France named Les Noces de Jeannette Restaurant à Paris. It was the most amazing food and brings back such great memories.

R&I: What is the most unusual/interesting place you have ever visited?

Israel. My husband and I just returned a few days ago and spent time in Jerusalem, Nazareth, Jericho and Jordan. It was an absolutely amazing experience. We did everything from riding camels to taking boat rides on the Sea of Galilee to attending concerts sitting on the Temple steps. The trip was absolutely life changing.

R&I: What is the riskiest activity you ever engaged in?

Many, many years ago … I went parasailing in the Caribbean. I had a great experience and didn’t think about the risk at the time because I was young, single and free. Looking back, I don’t know that I would make the same decision today.

R&I: What about this work do you find the most fulfilling or rewarding?

I would have to say the relationships and partnerships I have developed with insurance carriers, brokers and other professionals in the industry. To have wonderful working relationships with such a vast array of talented individuals who are so knowledgeable and to have some of those relationships develop into true friendships is very rewarding.

R&I: What do your friends and family think you do?

My friends and family have a general idea that my position involves claims and insurance. However, I don’t think they fully understand the magnitude of my responsibilities and the direct impact it has on my organization, which experiences more than 9 million visitors a year.




Katie Siegel is a staff writer at Risk & Insurance®. She can be reached at [email protected]