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IBM, AIG Pilot Blockchain Product for Multiline Insurance

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International Business Machines Corp. (IBM - Free Report) is expanding its footprint in the Blockchain market. The company along with American International Group (AIG - Free Report) and Standard Chartered PLC recently piloted a multinational insurance policy using the technology.

The first-of-its-kind smart contract will be based on Blockchain’s digital ledger technology. Blockchain enables data sharing across a network of individual computers. The pilot solution built by IBM is based on Hyperledger Fabric, a Blockchain framework and one of the Hyperledger projects hosted by The Linux Foundation.

Marie Wieck, General Manager, IBM Blockchain said: “There is tremendous opportunity to apply advancements in Blockchain technology to transform the insurance industry. By helping solve some of the biggest problems challenging the industry from eliminating silos of information to improving efficiency, Blockchain can truly make an enormous impact and even lead to new business models.”

IBM enjoys a first mover’s advantage in the Blockchain market. We expect Blockchain initiatives and rapid proliferation of Watson to help IBM’s stock rebound in the rest of 2017. The company has underperformed the S&P 500 on a year-to-date basis. While the industry gained 10.2%, the stock lost 5.4% over the same time frame.



Blockchain: An Emerging Trend

Per MarketsandMarkets, the Blockchain market size is estimated to grow from $210.2 million in 2016 to $2,312.5 million by 2021 at a compound annual growth rate (CAGR) of 61.5%. In the report, 2015 is considered the base year, while the forecast period is 2016–2021.

Alex Tapscott, co-author of the book Blockchain Revolution, compares it to the emergence of Internet in 1993. He explains the entire system as “a vast, globally distributed ledger where anyone, anywhere can move, store and manage any kind of asset, from money and securities to intellectual property and votes”.

Per ThreatMetrix, financial fraud is estimated to have cost consumers as much as £8 billion in 2016. Since Blockchain technology includes a distributed consensus and cryptographic transactions, dismantling the integrity of its records without being noticed by an entire network is difficult.

Consumers can use the network to verify their identity for services such as new bank accounts, driver’s licenses or utilities. Double spending and hacking can also be prevented by this technology.

IBM in the Blockchain Space

IBM is leveraging Watson, its artificial intelligence (AI) platform to improve its Blockchain technology. The Watson IoT Platform can add selected IoT data to a private Blockchain. The protected data is shared only among business partners involved with the transaction.

The data is sent for inclusion in shared transactions with tamper-resistant records. It translates existing device data, filters device events and sends only the required data to the contract.

With Watson’s growing adoption across industries, the combination of the two platforms will be a positive for the company and is expected to add to its customer base going forward.

IBM’s recent partnership with Everledger, a global startup that uses digital ledger technology to reduce fraud in the multi-billion dollar diamond industry, will also help it in further development of the platform.

We believe the combination of Watson in Blockchain will definitely help IBM to fight stiff competition from Microsoft (MSFT - Free Report) and Oracle (ORCL - Free Report) .

Zacks Rank

IBM currently has a Zacks Rank #4 (Sell)

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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