Blockchain will rescue us from car insurance litigation: Italian experiences

The most critical sector of insurance, the car insurance litigation, is the one chosen by Ania to launch the first Italian initiative to test blockchain technology. The outcome of more than 200 disputes is expected by the end of the year

Published on 25 Jul 2018

For blockchain technology to be the new digital reference platform for financial services, including insurance, has become a matter of fact for everyone, and we have often talked about it. It should be pointed out that at first startup companies tried to develop applications useful to the insurance sector, the most recent was the Chinese Zhong An (the most powerful insurtech in the world) that is working with the administrative services of the 100 partner hospitals to bring health and insurance data of patients to blockchain to ensure the automatic payment of reimbursements.

However, it’s time for companies to explore blockchain: who could better know where this technology can bring the greatest value and express its full potential, improving processes, safety and services?

One of these areas is smart contract, among others. The litigation sector is of course crucial, particularly in the liability for car insurance (which is the most extensive). According to Ania, the National Association of Insurance Companies (in Italy), chaired by Maria Bianca Farina, which recently promoted an initiative jointly organized by Reply and Cetif – Università Cattolica, with the participation of Ivass, the supervisory authority for the sector, and 8 insurance companies.

The aim is to create an ADR – Alternative Dispute Resolution – on blockchain technology that enables disputes to be resolved out of court, therefore without recourse to the Tribunal. The test will be carried out on 200-250 cases: the Company and the client’s lawyer will use an ad hoc platform to communicate, entering requests and proposals, including financial ones, on the platform up to the settlement of the dispute, with a maximum limit of five attempts. If an agreement is obtained, the platform will automatically issue the certified contract stating the solution or, if no agreement is reached, a contract stating the gap between the parties.

The results of this first tranche of disputes settled via blockchain are expected by the end of the year.

If, as expected, the trial is successful, the benefits will be enormous.

According to IVASS surveys (2016), there are more than 247,000 civil and criminal pending lawsuits (car and watercraft litigations) representing less than 10% of the total accidents reported (with an increase in the number of cases compared to the past); in addition, settlement is lengthy and claims can last for years, both in civil and criminal law.

Litigation costs

The amount set aside for pending lawsuits at the end of 2016 was equal to €6,849 million, 35% of the total reserve of the car insurance business line. “The average allocations (to reserve) for claims in litigation”, IVASS explains in a note, “have grown significantly over the years leading to an additional cost element for car insurance sector. Criminal litigation, although involving a very limited number of cases (2,424 at the end of 2016, 1% of the overall amount), represents a proportionally high reserve (€535 million, or 8% of the reserve for litigation)”. As far as expenditure for second and third degree cases is concerned, this amounts to € 45,526 for civil cases and € 220,875 for the criminal segment.

Therefore, a blockchain system able to support the solution of disputes out of court and quickly is very well advised. Of course, this would benefit consumers, insurers and also the legal system as a whole.

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