Subrogation is typically the last phase of an insurance claims process, when one insurance company recovers claim costs it paid to its customer for damages from the at-fault party’s insurance company, which includes its customer’s deductible.

“Today, subrogation is a relatively manual, time-consuming process often requiring physical checks to be mailed on a claim-by-claim basis between insurers,” says Mike Fields, Innovation Executive, State Farm. “In 2018 alone, the total amount of dollars demanded and issued through the subrogation process was over $9.6 Billion for all insurance carriers. You can imagine the time and resources required to complete these transactions.”

Companies across many industries are using blockchain technology to securely store data and manage transactions. USAA and State Farm are testing how blockchain can be used to gain efficiencies in the subrogation process by securely and automatically compiling all subrogation payment amounts, netting the balance, and facilitating a single payment on a regular basis between insurers.

“The blockchain solution we are working on has many potential benefits,” says Ramon Lopez, Vice President, Innovation, USAA. “It helps us automate a manual process securely and creates a permanent transaction record of each payment which can easily be verified for accuracy. It also has the potential to decrease the amount of time for consumers to receive their deductible reimbursement.”

The blockchain subrogation solution is the first of its kind between two major leaders in the insurance industry. The companies began working together in early 2018 and plan to continue testing to determine if the blockchain solution can be a viable product for industry adoption.

What is Blockchain?

Blockchain is a distributed ledger technology that can be used to manage transactions and store information using cryptography (i.e., mathematical algorithms and secret keys that encrypt data), peer-to-peer networking and data storage. This type of digital technology can create value for customers in ways that they wouldn’t expect from their insurance company. Subrogation is one example of where blockchain technology has the potential to reduce expenses while making processes more efficient and secure.

What is Subrogation?

Subrogation describes the right held by most insurance carriers to legally pursue a third party that caused a loss to an insured. Information about the claim is collected and the two insurance companies negotiate the claim amount. If an agreement is reached, the at-fault insurer submits payment to the other insurer on an individual claim basis. Insurance companies only share claim numbers and dollar amounts for subrogation purposes. No sensitive personal information is shared.

In the News:

• Forbes (7/18/19) State Farm And USAA See Stark Increase In Efficiency When Testing Blockchain Subrogation

• Digital Insurance (4/29/19) Inside State Farm's blockchain journey

• Forbes (4/16/19) Block Chain 50: Billion Dollar Babies

“Today, subrogation is a relatively manual, time-consuming process often requiring physical checks to be mailed on a claim-by-claim basis between insurers,” says Mike Fields, innovation executive, State Farm. “You can imagine the time and resources required to complete these transactions.”

Companies across many industries are using blockchain technology to securely store data and manage transactions. State Farm is working with another insurer to understand how an enterprise blockchain solution can be used to reduce the time needed to complete the subrogation process by securely and automatically compiling all subrogation payment amounts, netting the balance and facilitating a single payment on a regular basis between insurers.

Benefits

“The blockchain solution we are working on has many potential benefits,” says Fields. “It helps us automate a manual process securely and creates a permanent transaction record of each payment which can easily be verified for accuracy. It also has the potential to decrease the amount of time for consumers to receive their deductible reimbursement.”

Subrogation is typically the last part of an insurance claims process where one insurance company recovers claim costs it paid to its customer for damages from the at-fault party.

What is Blockchain

Blockchain technology can be used to manage transactions and store information using cryptography (i.e., mathematical algorithms and secret keys that encrypt data), peer-to-peer networking and data storage. Subrogation is one example of where blockchain technology has the potential to reduce expenses while making processes more efficient and secure.

What is Subrogation?

Subrogation is a term describing a legal right held by most insurance carriers to legally pursue a third party that caused an insurance loss to the insured. In auto claims subrogation for example, information about the claim is collected and the two insurance companies negotiate the claim amount. If an agreement is reached, the at-fault insurer submits payment to the other insurer on an individual claim basis. No sensitive personal information is shared between the two companies.

State Farm is no stranger to the innovative technologies transforming the insurance industry. Whether it’s our response to extreme weather events or research related to automated vehicle technology, we are committed to innovation that can enhance the customer experience.

So what is blockchain?

You've likely heard the term blockchain in relation to Bitcoin and other cryptocurrencies but, it is important to understand the distinction between the two. Blockchain isn’t a vendor or the name of a software. It’s the underlying technology used to manage transactions and store information using cryptography (i.e., mathematical algorithms and secret keys that encrypt data), peer-to-peer networking and data storage.

Blockchain has been recognized for its possible uses outside of digital currency because of the innovative way it facilitates transactions between multiple parties. Blockchain groups transactions into “blocks” which are linked together in a “chain” to preserve the integrity in which the transactions occurred.

Right now, when companies make transactions, sometimes a third party or middleman is involved. That third party confirms all the transactions and tracks the data – often times charging a fee for this service. By using a third party, State Farm is placing trust in people to make sure it is done right and increasing the chance of mistakes or delays due to human error.

With blockchain, that third party may be removed. By storing blocks of information that are identical across its network, the blockchain isn’t controlled by a single entity and has no single point of failure. It is more reliable – producing more trust in the transaction and the data. It has the potential to help drive efficiency in our current products and innovation.

State Farm is actively involved and monitoring the evolution of this technology across the insurance industry. We are also joining consortiums like our membership in RiskBlock. Blockchain is just one more way that we can meet customer needs in ways they wouldn’t expect from their insurance company today.

In the News:

• The Institutes RiskBlock™ Alliance -  The Institutes RBA Alliance Adds 12 New Risk Management & Insurance Corporate Members, Bringing Total to 30 (August 14, 2018)

• Hyperledger - Software Development and Community Growth Continues for Hyperledger (October 30, 2018)