The state of Vermont in the United States has been very proactive with the testing and experimenting of innovative technologies such as blockchain.
For example, the state first burst on to the blockchain scene in 2018 when they completed the United States’ first blockchain-based real estate pilot. Now, they want to apply blockchain technology to captive insurance, according to an official announcement published by the Vermont government’s website on January 11.
Secretary of State Jim Condos and Department of Financial Regulation Commissioner Michael Pieciak have signed a memorandum of understanding to collaboratively explore emerging blockchain technology in its use for digital records keeping for the captive insurance industry.
What Is Captive Insurance?
Captive Insurance is an alternative to self-insurance in which a parent group creates its own licensed insurance company to provide insurance coverage for themselves.
This method of alternative insurance helps large corporations to address the specific insurance needs of their company or companies while avoiding traditional commercial insurance companies with volatile costs.
All in all, captive insurance can increase a company’s cash flow, reduce a company’s costs, give the company direct access to reinsurance markets, and insure difficult risks.
The captive insurance industry plays a very important role in Vermont’s economy. In fact, Vermont is ranked the third global leader in the captive insurance industry, after Bermuda and the Cayman Islands.
The fact that the state has launched a blockchain pilot program for this budding industry is of vital importance for the adoption of blockchain technology.
How Can Blockchain Improve the Captive Insurance Industry?
As stated in the Request for Information document issued on January 10, Vermont’s blockchain pilot program intends to:
“Offer new Vermont captive insurance entities an option to file registration and reporting documents with
the Office of Secretary of State using private blockchain technology.”
The captive insurance blockchain pilot program will essentially provide real-world testing grounds for the potential of distributed ledger technology (DLT) within the state regulatory environment.
According to Secretary Condos, the blockchain pilot will allow state authorities to examine whether or not the application of blockchain technology for digital recordkeeping can improve aspects of the state regulatory process.
Adding to Secretary Condos statements, Commissioner Pieciak stated:
“Financial services firms are innovating at lightning speed and regulators have an obligation to keep up. This partnership with the Secretary of State provides a great opportunity for our teams to become better acquainted with distributed ledger technology and understand how the state and Vermont businesses might benefit.”
The specific areas in which the blockchain pilot program intends to improve include the transparency and validation of records of operations, overall data accuracy and efficiency, and the security of traditional recordkeeping processes.
Final Thoughts
All in all, blockchain technology has the potential to significantly improve the processes involved in the captive insurance industry as well as other insurance industries.
For example, in addition to Vermont’s recent blockchain pilot, in December 2018 the US insurance firm State Farm announced a blockchain pilot for auto claims.
More examples come from major US-based healthcare companies who formed a collaborative agreement to test blockchain solutions for reducing operations costs and improving data quality.
Also, last December the US Department of Homeland Security (DHS) announced that they are offering $800,000 in funding for blockchain-based solutions that prevent the forgery and counterfeiting of digital documents.
Blockchain technology is beginning to be implemented by numerous government authorities for a variety of use cases in different industries and businesses. Throughout 2019 we can expect to see more developments like these as the blockchain industry continues to build out their infrastructure.
What’s the next big area that blockchain technology will be tested in? Which blockchain projects will gain the most traction this year? Let us know what you think in the comment section below.
