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Blockchain, Decentralization and its impact on Insurance and HealthCare - Part 1

Author: Arshad Sarfarz Ariff, Technology Architect

The mysterious inventor of Bitcoin, Satoshi Nakamoto never saw the use of Blockchain technology limited to Bitcoin only. His vision is already turning into reality as industries and enterprises around the world are analyzing the use of Blockchain for various scenarios. As we all know, Bitcoin has already revolutionized the financial industry with the help of its underlying engine, the Blockchain.

Let us take a step backward and see why Bitcoin has become so important and how Blockchain made this possible. The unique selling propositions of Bitcoin are Trustless and Decentralization. Transactions for many ages involved a central party called a bank on whom we lay our trust for safeguarding our money. Bitcoin introduced the phenomenon of storing, securing and performing transactions without the need for a bank. Instead of relying on people and rules, Bitcoin uses cryptographic techniques to guard the money and the transactions.

One might think if a bank were not involved, then who would maintain the accounts. This is where many would refer to Bitcoin as a distributed public ledger maintained by each node involved in the network. Distributed ledger is an over simplification as a ledger is never maintained, instead it contains two Data structures, one for linking the transactions and other for linking the blocks. Each block contains list of transactions and the blocks are linked or chained hence called the Blockchain. A copy of these two data structures are maintained by nodes in the network called Full Nodes that verifies all the associated transactions to calculate the balance. This is aided by complex cryptographic techniques running on the Full Nodes that prevent anyone including the Full Node from tampering the Blockchain i.e. Data structures.

Anyone in the globe who has significant computing power can become a Full Node in the Bitcoin network by installing the bitcoin core software. This would download the complete data structure and verify all the transactions that had happened starting from the day Bitcoin went live. Bitcoin system targeted only Transactions having monetary value but people reckoned that the concept of Blockchain could be applied in many areas of life outside of digital currencies and this is where we are witnessing the emergence of Smart Contracts, Oracles and Dapps.

Blockchain currently used by Bitcoin can be referred to as a Public Blockchain as anyone in the world can become a Full node in the network. Blockchain comes in two other flavors i.e. Consortium Blockchain and Private Blockchain and this opens up even more possibilities for the enterprises.

Smart Contracts:

Blockchain invented with Bitcoin were restricted to dealing with currency transactions and does not allow any other logic to be executed based on the data or event. This is where Smart Contracts was envisioned which is a piece of custom-written logic that can be executed by the nodes in the Blockchain. From the perspective of a business user, Smart Contract stores rules for negotiating the terms of a contract, automatically verifies the contract and then executes the agreed terms. This one of the key extensions that had endowed Blockchain for use in various applications other than currencies.

Consider the following example, in Travel insurance.  A new public Blockchain can be created which employs a Smart Contract between Insurers, Airlines and the flyers that will hold information about flights of all the airlines, all the insurers and all the flyers. The policy purchased by flyers can be stored as Smart contracts on this Blockchain. The data related to departures and arrivals can be automatically fetched and the Smart Contracts would execute to determine if there is a delay and automatically trigger the payouts to customers if the delay window is breached. This would greatly reduce the efforts put in by the customers, insurers and the airlines besides resulting in cost savings for the insurers. Since the complete flight data is publicly available at one place, insurers can use Machine Learning algorithms to detect delay patterns based on various parameters and devise better policies leading to better cost savings.



In the Flight example, automation of data fetch for flight departures and arrivals was made possible using Oracles, which provides inputs about the external world to the Smart Contracts. Oracles would collect inputs from various sources, streamline and feed them to the Smart Contracts that would make the final decision. Please note Oracles do not decide the outcome, they merely provide the inputs to Smart Contracts for final decision making. This use case can be extended to cover insurance for baggage loss where oracles can collect information using IOT and feed it to the Smart Contracts.

Another example where Oracles are inevitable would be in HealthCare insurance. Currently Third Party Administrators (TPA) are involved between insurers, care providers and patients. Claims processing, as we know is time consuming and one of the key concerns of the insurers is to reduce fraudulent claims. Consider a public Blockchain created for the Health Insurance that would store policies using Smart Contracts between insurers, care providers and patients. This would eliminate the need for third parties resulting in reduced cost for the insurers and care providers ultimately in resulting faster processing and cheaper policies for the patients. This can be envisaged as an ultra-complex contract containing all the rules relating to the disease, medication and terms of the contract.

Since complete health insurance is tracked on the public Blockchain, it becomes easier to identify the fraudulent claims. For example, customer cannot claim from multiple vendors when the nature of the medication or policy restricts claim to be made more than once. Oracles would also be involved to provide inputs on whether a claim is genuine.

One might argue that there may be cases where Smart Contracts would not be able to decide on fraudulent vs genuine claims. Multi signature algorithm referred to as multisig can address this riddle, which would require signature or authorization from a group of people. The complete transaction becomes valid only when the designated parties sign the transaction. This might look like moving back to TPAs but the occurrences of this event can be much lesser in magnitude compared to the current scheme where all transactions go through TPAs.



Decentralized applications referred to as Dapp, need to satisfy four criteria as mentioned in the Dapp white paper. These four criteria i.e. open-source, use of Blockchain, use of cryptographic token and proof for generating tokens were clearly inspired by the technologies fueling bitcoin. Needless to mention, bitcoin is the most successful Dapp ever developed until date. History has proved that the model of centralized applications is flawed due to single point of failure, single point of attack and laying down our entire trust on a 3rd party. Yet applications were built using this paradigm due to lack of feasible alternative. With the advent of Blockchain, Dapps will soon be in the spotlight opening the floodgates for a new market of apps. Unlike traditional server architecture where an application runs on centralized servers, Dapps will run on all the nodes involved in the Blockchain network. Dapp generally comprises a Frontend and a Backend. The Frontend could be using HTML, JS and CSS technologies. The Backend will consist of Smart Contracts running on the Blockchain.


                                                                To be continued....

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