Denver-headquartered IMA Financial Group, one of the largest employee-owned private insurance brokers in the country, became this week the first broker to issue a certificate of insurance using blockchain technology, the company said.
IMA believes the transaction proves the concept of using the blockchain for insurance transactions, which it thinks will become a standard practice across the industry in the near future.
"This was really just to prove the concept and be the first to market on this because we understand this is going to be commonplace," said Garrett Droege, IMA's senior vice president and director of innovation and strategy. "I think in three to five years that every certificate will be issued on the blockchain."
In March, IMA unveiled Web3Labs, a research and development facility in Decentraland, which is a virtual world based on blockchain technology. The effort was funded by IMA's investment arm, IMA Investments Inc.
IMA has a large number of clients that are involved in Web3, which incorporates ideas such as blockchain technologies and token-based economics. The goal with Web3Labs is to explore the risks associated with digital assets and the blockchain, Droege said.
"Our thought was, if we're going to be charged with protecting these companies' assets, we need to be involved where they operate, which is Web3," he said.
The first transaction to come out of the Web3Labs initiative was a certificate of insurance issued this week to IMA client Engiven, a cryptocurrency donation software that services nonprofit organizations. The certificate was transacted as a non-fungible token, or NFT, through Decentraland. NFTs are considered unique assets that are stored in a blockchain and can't be replicated.
NFTs have been around for about a decade, but a report from DappRadar, which tracks blockchain activity, shows the market's growth skyrocketed in 2021, climbing to $24.9 billion from just $94.9 million in 2020. Many people get involved with NFTs for personal enjoyment or to invest in them as speculative assets, but the technology hasn't been used to its full potential for business processes, Droege said.
"Despite the buzz around NFTs, the tools aren’t widely used in business," Droege said. "[Certificates of insurance] are the perfect utility to illustrate their value."
Certificates of insurance contain details of an insurance policy in an easily readable, standardized format. It made sense for IMA to start using blockchain technology with certificates of insurance because they're not often maintained like they should be and they're susceptible to fraud, Droege said.
Despite contractual requirements to maintain the documents, certificates of insurance are rarely updated or reviewed, leaving companies at risk, according to IMA. It's also become easy to manufacture fraudulent certificates, and it's difficult to verify them.
Droege believes blockchain technology provides a secure way to issue certificates of insurance and protect against fraud because it acts as an unalterable ledger that tracks assets and records transactions. As an NFT, the certificate acts as a smart contract.
"It shows that the certificate is valid at this very moment in time," Droege said. "If for whatever reason, if the client chooses not to renew the insurance policy or they don't pay their premiums and the policy cancels, that contract collapses, and the certificate is no longer valid."
Now that it's proved its concept, IMA is looking to build out its technology to be able to handle blockchain transactions across its client base. It will work with third-party companies to help it establish that model, Droege said.
IMA doesn't want to be the only insurance broker using blockchain technology to make transactions, he said. The company hopes more brokers get involved to help evolve and perfect the process.
"Our goal really is to push the entire industry forward and showcase what's possible," Droege said. "With this, we wanted to say, 'It's possible because we just did it. Now, let's all participate.'"
