State Farm Mutual Automobile Insurance Co. is testing a distributed ledger blockchain solution to speed up auto claims.

Announced Monday, the proposed solution would automate subrogation, the end of the insurance claims process where insurance companies recover money spent on damage claims.

Using blockchain technology, State Farm will manage claim transactions and store that information in a cryptographically secure, highly trustworthy ledger. When claims are paid by the insurance company, the at-fault parties will be noted in the distributed database and automated processes run against the blockchain would then execute payments.

Subrogation is a term that describes a legal right of insurers to recapture losses caused by other parties, such as from a third-party driver who caused a crash. In auto insurance, during subrogation, two insurance companies collect information about an accident and trade information, then negotiate the claim amount.

When it comes time to settle the payment, the at-fault insurance company pays the other insurer. No sensitive personal information is shared between the two companies.

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

State Farm will compare the blockchain system with its automated processes against the existing system used to execute subrogation payments used by the industry.

Looking at how other industries have put blockchains to use in order to speed up processes, reduce errors and increase efficiency, State Farm hopes to harness this technology to make subrogation faster and less costly. To do this, State Farm’s blockchain will be shared with another insurer and will automatically compile all subrogation payment amounts, totaling the balance periodically into a single payment on a regular basis between insurers.

“The blockchain solution we are working on has many potential benefits,” said 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.”

State Farm employs nearly 19,000 agents out of 65,000 employees who oversee 83 million policies and accounts. In 2015, drivers in the U.S. were involved in more than 4.5 million car crashes that led to property damage. The insurance industry had total revenue of $259 billion during 2017, according to IBISWorld Inc. market analysis.

The insurance industry has been testing blockchain solutions for some time, using the technology to reduce human error by providing automated systems that verify one another and increase efficiency by reducing paperwork. In September 2017, insurance advisory service Ernst & Young Global Ltd. and blockchain provider Guardtime AS announced the world’s first blockchain platform for marine insurance.

Bitfury Group Ltd. and Risk Cooperative joined forces in June 2017 to build blockchain platforms for the insurance intermediation market. In April, The Australia and New Zealand Banking Group and banking company Suncorp New Zealand Ltd. partnered with IBM Corp. to begin work on a blockchain that would oversee policy payments.

Industry analysis company MarketsandMarkets Research Private Ltd. reported that the blockchain insurance market accounts for $64.5 million as of 2018 and is expected to reach $1.3 billion by 2023. North America, the home of State Farm, is also estimated to be the stronghold, with the largest market share during the forecast period.

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