Blockchain has been one of the most searched technology words on Google during the latter half of 2018. This shows that there is still a lot of inquisitiveness surrounding this technology. Suffice it to say that blockchain is finding applications in almost every industry. One such industry where blockchain is steadily gaining pace is the insurance sector. Integrating Blockchain in insurance can open up a lot of possibilities.
Insurance is a contract which offers financial protection from a possible eventuality or loss. It is a form of risk management. There are different types of insurances like auto, health, life, property and even reinsurance.
At a very basic level, blockchain is literally just a chain/database of blocks of digital information with each block linked to another and having a unique code. It can also be defined as a distributed, encrypted peer to peer ledger of records called blocks. The advantages of this technology are that it is distributed, decentralized, secure, transparent, incorruptible, immutable and auditable. There is immense potential for blockchain technology to disrupt the insurance industry and change the way we share data, process claims and prevent fraud thus impacting the business and creating greater trust and transparency.
That brings us to the question;
Insurance companies face a number of challenges relating to complex compliance issues, fraudulent claims, handling and security of huge amounts of data ( KYC / AML), third-party payment transactions and renewals. The insurance industry understands that it must adopt new technologies to tackle these challenges and stay competitive. Blockchain technology can help insurance companies the challenges they are facing in the current market by creating transparent operations built on trust and stability.
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Using smart contracts, the insured and the insurer would benefit from managing claims in a quick and transparent way. On submission of claims, the blockchain would verify contracts and ensure that only valid claims are paid. Multiple claims submitted for the same eventuality can be tracked in the network. On meeting the required criteria, the contract could trigger payment of the claim without any human intervention, thereby improving the speed of resolution for claims. Claims data stored in a shared ledger will help insurers to collaborate and identify suspicious activities across the ecosystem.
It is estimated that between 5 to 10% of all claims are fraudulent and the total cost of insurance fraud is in excess of $40 billion a year. This is not only just about insurance companies losing money, but also about the effect of increased premiums for the customers. Smart Contracts and immutability of Blockchain help in the prevention of fraud. A smart contract is a computerized transaction protocol that can digitally facilitate, verify, execute and enforce the performance of an agreement. These transactions are trackable and irreversible. This process is automated and can act as a compliment for legal contracts. Smart contracts help in the management of claims in a highly transparent and responsive manner. The benefit of a smart contract is that it promises accuracy, transparency, higher speed, trust and data storage.
Customers have a fear of losing control over their personal data. Blockchain provides a solution to drive efficiency and security that would allow the personal data to be controlled by the individual while verification is registered on the blockchain. Customers’ personal data could be stored on a distributed ledger, with the consumer being in control of who has access. Insurance companies are also looking at blockchain to enhance their identity-based solutions that provide validated data about an individual customer and make it easier to use privacy based data, especially in KYC / AML transactions.
Protecting data/asset provenance, and enabling data portability and auditability is possible through its time stamping and immutability attributes. Blockchain can also help all players from agents and brokers to distributors and underwriters by using the same source of data to underwrite risks and make decisions. The shared ledger enables elimination of errors thus increasing the overall efficiency and transparency across the entire value chain. This can indirectly reduce data management costs too.
Reinsurance is insurance for insurers. Currently, it’s not an efficient system and is determined by one-off contracts. Depending on the type of reinsurance purchased, it can cover a proportion of an insurers risk for a certain period or cover certain types of risks. Every risk in a contract needs to be individually underwritten. Insurers will typically engage multiple reinsurers which means that the data has to be exchanged between various parties to process the claims. A blockchain ledger can easily provide insight and notification in case an insurer is seeking to offload the risk between two separate re-insurers. Blockchain technology can support the reinsurance processes by streamlining the flow of information on a shared ledger between insurers and reinsurers. Using a Blockchain network, the detailed transactions of premiums can exist on an insurer and reinsurer’s system at the same time, which eliminates the need to reconcile books for each individual claim.
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Auto/ Property/ Casualty Insurance:
The major problem faced by this sector is gathering the necessary data to evaluate and process claims. At present, this is an error-prone process as it involves a lot of manual data entry and coordination between different parties. By allowing the policyholders and insurers to track and manage physical assets digitally, Blockchain can automate the claims processing through smart contracts. It also keeps a permanent audit trail. Imagine that a person meets with an accident. To recover the losses, they have to submit a claim to the insurance company. The insurer will then need to examine the claim. In a Blockchain network when a person takes an insurance policy, the insurance providers will have agreements (smart contracts) built into the blockchain so that payments will be triggered based on specific conditions. This allows policyholders claims to be processed efficiently by having all the parties involved in the transaction to execute its necessary processing activities using pre-established smart contracts.
The personal health records of customers could be encoded and stored on the blockchain with a private key, so that they are only accessible by certain individuals, thereby ensuring privacy. By setting up a smart contract between the patient and the insurance company the claims process can be simplified. For the insured, the smart contract will self-execute once the medical procedure has been completed and all the terms and conditions mentioned in the contract has been fulfilled. The receipts of hospitalization will be stored on the blockchain and will be automatically sent to the insurance providers as proof-of-delivery.
Life insurance deals with the claims associated with death or maturity. Blockchain in insurance could help create a streamlined unified solution. When a death occurs, the hospital enters the details of the deceased into the blockchain network. The data is retrieved and processed by the insurance company to check for a possible match in the company records. The death registration form generated by the government department along with the hospital certificate will be shared in the blockchain network. This form will be further processed and the death certificate generated. The documents can then be shared with the insurer and beneficiary. The blockchain network makes sure that the documents reach the required participants in a secure manner, thereby avoiding multiple exchanges of the documents.
The market share of Blockchain in Insurance was valued at approximately USD 17 million in 2016 and is anticipated to grow at a rate of more than 85% year on year till 2025. Incorporating Blockchain in insurance long-term benefits such as lower operational costs in the form of reduced duplication and increased automation of processes, reduced risks and secure and decentralized transactions. With higher levels of trust, transparency and cost savings established between the insurer and the insured, the industry is on the verge of disruption and poised to grow multifold.Today I learned: The market share of Blockchain in Insurance was valued at approximately USD 17 million in 2016 and is anticipated to grow at a rate of more than 85% year on year till 2025. Click To Tweet