Blockchain Technology 

in the Insurance Sector

Quarterly meeting of the 

Federal Advisory Committee on Insurance (FACI)

Jan 5, 2017

CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission of McKinsey & Company is strictly prohibited
McKinsey & Company | 1

10 things you should know about Blockchain

▪ Investment in blockchain is gaining momentum (~$1Bn of Venture Capital investment over the 

last 24 months) and is expected to grow rapidly; the banking industry is expected to spend 

~$400MM by 2019

▪ 70% of financial organizations are in the early stages2 of experimentation; most executives 

expect to see material impact from this technology only in 5+ years

▪ Most of the impact from blockchain in financial services is likely to come from payments, and 

capital markets. Preliminary sizing of 4 use cases suggest significant value creation - the 

estimated impact of these use cases alone is $70-$85B but feasibility varies significantly

▪ Organizations can unlock the value of blockchain through a deliberate five-step journey: 

Education, Strategy, Solution design, Implementation, and Approach

▪ Enabling collaboration, shaping a positive regulatory environment and identifying clear 

business cases justifying the transition costs will pose the biggest challenges to implementation 

▪ By overcoming these challenges, blockchain technology could reach its potential within 5 years

1 Blockchain solutions other than solutions that are purely related to Bitcoin

2 “Wait and see” and Early equity investor stages

▪ However, blockchain is not the silver bullet solution for all the pain points in the industry

▪ Blockchain is a nascent technology with the potential to bring about step-function 

improvements in efficiency and security to the financial industry - or it could simply be over-hyped 

and unnecessary 

▪ >60 Nascent use cases1 exist across multiple industries with a primary focus in financial 

services (~40%) and cost reduction (~70%) 

What is 

blockchain? 

What is the 

impact for 

financial 

institutions?

What is the 

implementation level 

across the 

industry?

1

3

▪ The success of these investments is highly dependent on the collaboration in an emerging ecosystem primarily driven by innovation in the Insurtech and fintech industry

4

5

6

10

8

9

2

7
McKinsey & Company | 2

Although institutions are at different stages of experimentation, most now 

believe it could take 3-5 yrs for blockchain to have a material impact 

% of respondents1

One half of Institutions are in ‘Wait & See’ mode 

6

26

18

50

Fully 

implemented 

solution

Early equity 

investor

Partnership or 

internal pilot

“Wait and see”

1 N = 35

SOURCE: Based on survey of senior executive leadership in financial institutions, Feb 2016 and May 2016

Increasingly, impact expected to take 5 yrs

% of respondents

Financial 

technology 

labs

Venture capital 

funds/ equity stakes

Internal pilots

Blockchain 

accelerator 

programs/ 

hackathons/ 

position papers

Fully implemented solution Partnering in 

a consortium 

to design 

blockchain 

solutions

6

49 46

86

14

0

>5 yrs or 

never

0 - 18 

months

3 – 5 yrs

Feb 

20161

May 

20162

STATE OF THE INDUSTRY

2 N = 15
McKinsey & Company | 3

Blockchain could be one of the most disruptive innovations since the 

advent of the internet

What on earth is a blockchain? How does it work?

1

Electronic message 

created (e.g., 

transaction details)

Sent to distributed nodes 

with unique 

crypto signature

Economic race 

to be first

to validate 

transaction

4

Network replicates record

of verified 

transactions

Block added 

to all 

distributed 

ledger copies

6

3

Confirmation 

broadcast to rest

of network

1

2

5

WHAT IS BLOCKCHAIN?

▪ A cryptographic or encoded 

distributed ledger, comprising a 

digital log of transactions that is 

shared across a public or private 

network

▪ Database well suited for 

applications requiring a rapid, 

permanent time and date stamp

such as: 

– Payments 

– Financial asset transfers 

– Smart Contracts 

– Ownership splits and notary 

services 

▪ A technology that brings 

substantial benefits in terms of 

speed, security, convenience

and costs
McKinsey & Company | 4

Core innovation and supporting elements in all blockchains

First ever solution to the double spending problem / data conflict 

resolution that doesn’t require a central administrator or clearing agent 

Core 

innovation

Solving the double spending 

problem in this manner provides a 

decentralized, unbroken historical 

record of all data transactions

Decentralized solution

The randomness of verification 

agent selection is imperative to 

maintain the integrity of the 

database

Process integrity

Messaging system with read-write 

access protected by cryptographic 

keys, generated by latest security 

technology

Data security Valuable Redundancy

Multiple copies of the same data 

across a large network reduces 

downtime and increases 

resistance to malicious attack

1

WHAT IS BLOCKCHAIN?
McKinsey & Company | 5

Blockchain technology is applicable across multiple use case 

categories as a static store of secure information or dynamic store of 

tradeable information

Needs addressed by blockchain Description Real world example applications

Record 

keeping

Transactions

▪ Stores of 

static

information

▪ Registry of 

tradeable 

information

2

▪ Manage registry of asset 

ownership 

▪ Provide automation of 

specific assets

▪ Land title

▪ Gift card ownership 

▪ Chain of custody

Identity

▪ Securely store, confirm and 

distribute identity-related info

▪ Revise personal/ other data

▪ Store bank/ credit card identity info 

on blockchain to enable user to 

easily access proof of identity

Static 

Registry

Smart 

contracts

▪ Insurance claim payouts

▪ Cash equity trading

▪ Release of new music

▪ Create and execute semiautonomous contracts on 

distributed digital platform

▪ Streamlined low transaction 

settlements to address liquidity 

mismatches in loan funds

▪ Exchange of physical and 

digital assets on a digital 

platform

Payments 

infrastructure

▪ Peer-to-peer lending through the 

Bitcoin blockchain, disintermediating banks

▪ Efficient payment transfers 

with lower friction, improved 

record keeping

Dynamic 

registry

Verifiable 

data 

▪ Event tickets

▪ Registry of independent artists’ work 

Protection of Intellectual property 

▪ Store of information and 

easy access to secure, 

dynamic information

1

2

3

4

5

6

WHAT IS BLOCKCHAIN?
McKinsey & Company | 6

Distribution of current non-Bitcoin, blockchain solutions1

Across at least 80 nascent but real opportunities to apply

blockchain technology1, nearly one quarter exist in insurance

Number of use cases, % by category

SOURCE: McKinsey Panorama, web search

Idea stage 

Commercialized –

Not scaled

In development 

(no output yet)

Tested but 

not yet

commercialized 

64

Lifecycle

18

12

0

Commercialized –

Scaled2

Revenue

Risk

Cost

47

41

Primary intention3 

12

6

1 Blockchain solutions excluding solutions that are purely related to Bitcoin; 2 Annual revenues US$1+ MM

3 In many instances use cases have a secondary intention

Other2

Register of 

ownership

Consumer

Healthcare

Identity

Arts & 

Entertainment

Securities

Public Sector

Payments

6

9

13

Industry

Financial Services (50%)

5

11

9

6

17

2

22

Insurance

For the Insurance use cases...

3

WHAT IS BLOCKCHAIN?
McKinsey & Company | 7

Investment in blockchain has already started to gain momentum and is 

expected to grow at a very high pace in the near future

SOURCE: AITE Group, Tabb Group, CoinDesk

400

315

210

130

67

39

e2017

+59% p.a.

2014 2015 e2016 e2018 e2019

...And the banking industry is expected to spend 

~$400MM on distributed ledger technology by 2019

Estimated capital market spending, 2014-2019e

(USD MM)

101

160

26

87

140

235

136

59

77 67 59

10 17

3

Q3 Q4 Q1 Q2 Q3 Q2 Q3

2014

Q1 

2015

Q1 Q2

2013

Q4 Q2

+31% p.q.

Q1

2016

Q4

Venture capital is pouring in, developers are excited and 

industry players are taking note... 

Investments in blockchain-related startups

(USD MM)

4

IMPLEMENTATION LEVEL ACROSS THE INDUSTRY
McKinsey & Company | 8

Effective use case execution will depend highly on strong collaboration 

among players in an ecosystem (financial services example)

SOURCE: Expert interviews, web search

Banks/financial institutions 

Growing interest in disruptive blockchain 

solutions with ~$400MM estimated capital market 

spending by 2019

Explaining blockchain use cases with few actual 

experiments and multiple roundtable 

Blockchain 

ecosystem

Fintech companies

Leading the innovation in connection with 

blockchain technology 

Industry utilities/platforms

▪ Much attention from industry utilities paid 

to blockchain developments due to the risk 

of disintermediation of utility functions 

▪ Platforms interested in deploying 

blockchain, leading implementation Assessing the potential of blockchain technology 

Non-banks

No strong focus yet, likely to 

grow as blockchain 

proliferates

Strong interest in blockchain’s evolution, certain 

publications (especially on 

Bitcoin)

Central bank

Associations Regulators

OSFI

CFTC

OCC

5

IMPLEMENTATION LEVEL ACROSS THE INDUSTRY
McKinsey & Company | 9

McKinsey has identified 7 genuine use cases and associated pain 

points; all of those sized could generate ~$80B to 110B in impact 

SOURCE: McKinsey analysis

2 - 5

3 - 5

7 - 9

4 - 8

4 - 7

50 – 60

14 – 17

Value generated by 

blockchain ($B)

Identified 

>60 viable 

use cases

from a 

database of 

>200 fintech

startups, 

press 

clippings, 

and 

research

Focused on 

24 financial 

services 

applications

Selected 7 

use cases 

for analysis, 

based on 

initial 

hypothesis 

of potential 

for 

disruption 

and size of 

impact

64

24

7

6

Identity 

G fraud

Trade 

A finance

Crossborder B2B 

payments

B

Crossborder P2P 

payments

C

Repurchase 

agreement 

transactions 

(repos)

D

KYC / AML 

management

F

OTC 

E Derivatives

Blockchain benefits Drivers of cost today

Examples of 

impacted players 

 Paper-based and labor 

heavy structure 

 Error-prone processes

 Capital that is locked up 

in the TF processes

▪ Lower cost and 

operational risk, faster 

turn-around, increase 

in revenues

▪ Lower cost and fees

▪ Increased security 

and speed

 Paper-based

 High fees due to lack of 

intermediary competition

 Capturing incorrect 

receiver information

▪ Lower cost and fees 

from competition, 

increased security and 

transparency

 Inability to net the 

obligations

 Counter-party risk

 Credit sensitive repo 

buyers

▪ More effective netting

▪ Lower systematic risk

▪ Reduced operational 

costs

 Manual and duplicative 

data entry and verification 

processes

 Low visibility into 

transactions

▪ Reduced duplicative 

efforts in on-boarding 

customers

▪ Improved transaction 

monitoring

 Direct losses due to fraudulent activity (90-95%)

 Fraud prevention 

infrastructure and 

processes (5-10%)

▪ Secure storage of ID 

credentials

▪ More secure account 

opening, transaction 

authentication

 Manual and duplicative 

data entry and verification 

processes

 High capital requirements

▪ Reduced operational 

costs and capital due 

to streamlined 

processing and 

settling 

Application by 

type of bank

CIB Retail Cost Revenues Capital

Impact levers

 High fees and slow 

processing due to 

intermediaries

 High operational costs

IMPACT FOR FINANCIAL INSTITUTIONS
McKinsey & Company | 10

Pricing/

underwriting

Risk capital & 

investment 

management

Product 

development and 

distribution

Payment & 

collections Claims

Policy/

administration and 

back offices

In Insurance, blockchains have potential for impact across 

the entire value chain NOT EXHAUSTIVE

1 Not all insurance-specific

Potential

Key benefits

▪ Reduce cost related 

to commission and 

sales and operations

▪ Increase trust of 

customers due to 

open, distributed 

system

▪ Reduce cost of 

operations

▪ Reuse platform for 

other types of 

insurances

▪ Include external 

data for (semi-) 

automatic pricing

▪ Reduce cost and 

increase speed for 

payments 

▪ Reduce average 

claims cost related to

– Claims 

administration 

– Damage from fraud 

and fraud detection

▪ Improve identification 

of claim events

▪ Reduce admin costs

▪ Automate and 

increase reliability, 

auditability and 

speed for financial 

instruments 

transactions based 

on defined events

▪ Reduced admin cost 

and speed-up 

process for 

onboarding

Potential 

use cases

with smart 

contracts

▪ Offer P2P insurance 

via blockchain for 

customer to 

customer promotion 

and sales, and 

automated ops with 

smart contracts 

▪ Use blockchain for 

P2P insurance 

underwriting, include 

external data, smart 

contracts and peers 

(humans) to 

determine tariff

▪ Automate payments 

through smart 

contracts evaluating 

conditions for paying 

out claims

▪ Automate claims 

triggering and 

handling with smart 

contracts, and e.g., 

with sensors (IOT)

▪ Use smart contracts 

to automatically 

determine payouts –

e.g. triggering 

process of 

catastrophe swaps 

and bonds

Examples1

edgelogic

Allianz 

Risk 

Transfer

▪ Use blockchain as a 

reliable registry for 

on-demand / usagebased insurance or 

micro-insurances

▪ Using blockchain as 

payment infrastructure (especially 

across multiple 

countries)

▪ Leverage blockchain 

for information about 

insured goods and 

events in order to 

fight fraud

▪ Use blockchain for 

onboarding of new 

customers or 

verification of policyholder identity

▪ Make data available 

for re-insurers or 

other parties in a 

controlled way

Potential 

use cases

7

IMPACT FOR INSURANCE INDUSTRY
McKinsey & Company | 11

Applications of blockchains in P&C Insurance (including true P2P 

insurance contracts) will improve efficiency and customer experience

Applications Shortcomings of current landscape Blockchain enhancements

▪ Claims typically processed manually, 

requiring extensive central validation

▪ Manual processing can introduce both 

decision subjectivity and errors

▪ Subsequently claims processing is 

slow, complex and subject to human 

error

▪ Automated insurance policy written into a smart contract 

which enforces and pays out against insurable event 

without manual administration

▪ Claims processed and paid on a logic-based system 

requiring all information to be complete

▪ Distributed validation network ensures only legitimate and 

complete claims are paid out on basis of independently 

verifiable oracle feed

▪ Claims processing and management is transparent, 

accurate and irrefutable

Smart 

contracts

▪ Tracing provenance relies upon faithful 

record-keeping along with item

▪ No secure documented trail back to 

origination of article (e.g., art, diamond)

▪ Initial provenance recorded with immutable time and 

date stamp and proof of existence (e.g., photograph)

▪ Subsequent ownership and location can be recorded in 

secure, immutable, chained history of object

Valuables 

provenance

▪ Growing threat from fraud based on 

false claims for staged incidents

▪ Claims often made against several 

policies held by independent insurers

▪ Fraud detection almost impossible 

without cross-party industry data 

▪ Distributed network independently validates (by 

consensus) contracts and claims to be paid

▪ Network verifies true identities and rejects multiple claims 

for same incident

▪ Storing history of claims in distributed cross-industry 

database enables detection of fraudulent behavior patterns

Fraud 

reduction

Data 

continuity

▪ Consumer data is especially valuable in 

telematics and Usage-Based Insurance

▪ But, insurer, not customer, owns usage 

data and associated benefits

▪ Consumer data does not migrate with 

customer from one insurer to the next

▪ Consumer data exists independently of insurer

▪ Data access can be granted by consumer through their 

public key to any third party

▪ Enhanced risk-assessments and underwriting made 

possible by more complete behavior history

7

APPLICATIONS FOR INSURANCE INDUSTRY
McKinsey & Company | 12

And a growing number of companies is working on 

blockchain use cases for insurance

SOURCE: McKinsey Panorama Database, Web search

1 Activities not necessarily limited to insurance industry

2 Different types of activities: direct/indirect investments, participation in R3 consortium or own prototypes

Start-ups EXAMPLES 1

Others1

...

Insurers2 

InsurTechs, insurers and other companies are working 

on blockchain use-cases for insurance Selected cases

SafeShare has launched a blockchain-based 

platform to register on-demand insurance in UK 

(underwritten by Lloyds of London) Mar 2016

Allianz announced a successful prototype to 

automate catastrophe swap transactions

Jun 2016

Blem, a provider of reinsurance solutions, is

working with z/yen group to record claims in a 

blockchain for accurately dividing cost between

insurer and reinsurer May 2016

Tradle provides Know-your-customer application 

to ease and speed up onboarding processes 

(POC phase) Aug 2015

7

INSURANCE USE CASES
McKinsey & Company | 13

Early successes have been achieved primarily by 

consortia working together, including in Insurance

 The insurance 

industry is 

beginning to 

collaborate on 

blockchain via 

consortia (e.g., B3i)

 Consortia are 

developing Proofs 

of Concept using 

distributed ledger 

solutions to replace 

some part of the 

traditional 

infrastructure to 

improve speed and 

reduce risk

Blockchain 

consortia

Trade 

Finance

Cross-border 

payments 

Global money 

transfers

Clearing 

and 

settlement

Catastrophe 

Swaps/ 

Bonds

Syndicated loans 

and reference 

data processes Engineering 

Insurtech

Retrocession 

insurance

NOT EXHAUSTIVE 7

PROOFS OF CONCEPT
McKinsey & Company | 14

However, blockchain should be employed only under certain 

conditions and requirements

5

Economic benefit 

for participants

3

Existence in 

absence of trust

1

Distributed 

ledger

4

Causing 

disintermediation

2

Remote 

independent writers

5 key criteria for blockchain

8

IMPACT FOR FINANCIAL INSTITUTIONS
McKinsey & Company | 15

Shaping the regulatory environment is the biggest challenge to 

unlocking the potential value of blockchain

Regulatory environment challenges Key considerations

▪ Educate and involve regulators

▪ Propose solutions to unique 

regulatory questions

▪ Communicate regularly, 

especially on uses related to 

consumers

9

Overall attitudes from NA regulators appear to be “do not harm” as distributed ledger 

technologies evolve

▪ Decentralized ownership

▪ International jurisdiction

▪ Encryption and user anonymity

▪ Blockchain transactions of nondigitized assets will require legal 

consideration of off-chain settlement

IMPACT FOR FINANCIAL INSTITUTIONS
SOURCE: Mckinsey, expert discussions McKinsey & Company | 16

2009 2016 2017 2018 2019 2020 2021

Future of blockchain 

Block-chain 

solutions & 

Criteria for 

survival

100+ 

solutions 

explored 

20-30 use 

cases 

tested 

10-20 

successful 

business 

cases 

Ages of 

block-chain

Only Bitcoin 

based solutions

3 initial hurdles

▪ View on potential benefits ($) 

of use cases 

▪ Relevance to, and severity of 

current pain points and proof 

that Blockchain is the best 

solution

▪ Critical number of players 

willing to move

3 main hurdles

▪ Establishment of legal / regulatory 

framework

▪ Viability of business cases (incl. 

justifying costs of implementation 

incl. integration)

▪ Agreement on key standards and 

active collaboration across all 

required players

Momentum 

and hype 

building

Exploration 

of use 

cases

Commercial 

deployment 

at scale

Expansion of 

proofs-ofconcept 

Bitcoin age

Dark age New era

Based on the current rate of evolution, we believe blockchain 10 solutions could reach their full potential in the next 5 years

IMPACT FOR FINANCIAL INSTITUTIONS