Reviewing and settling insurance claims is labor-intensive and a largely manual operation. It typically involves middlemen personally cross-checking the claimant’s certificates, documents, police records, medical reports, etc., which may result in a lot of errors and necessitate multiple rounds to get things right, in addition to being time-consuming.
Every business including banking, e-commerce, insurance, etc. is looking into how to use distributed ledger technology to build stronger systems.
Blockchain is one such technology that records transactions and monitors access across a network of computers. Insurers can trust blockchain as it offers a network with restricted access and a secure mechanism to exchange important information.
Benefits of Using Blockchain in Insurance
Insurers have embraced blockchain because of its advantages ranging from providing real-time data to automation to increased trust. Below are some benefits of using blockchain in the insurance industry.
1. Prevent Fraud
One of the largest issues faced by any sector is fraud and insurance fraud costs Americans a loss of $80 billion each year. Though insurance firms deal with false claims using smart analytics and other approaches, scammers constantly come up with more complex ways to deceive businesses.
Double dipping or processing several claims from the same incident can result in insurance fraud. This results in unfair financial gain and is illegal in many ways.
Blockchain can record transactions with full audit trails, making it very challenging for fraudsters to carry out their crimes. Similar to how Bitcoin makes it impossible to spend twice, the distributed ledger technology of the blockchain helps prevent identical transactions from being approved for the same claim.
The distributed ledger technology helps insurers store data that is controlled by them, the brokers and the customers, creating a digital history of all the transactions. For any transaction to take place, encrypted signatures of individuals involved are important.
With this method of storing and accessing insurance data on a shared ledger database, insurance companies and all of its third parties can cooperate and identify fraudulent actions along the insurance value chain. This also includes finding unlicensed brokers offering insurance and repeatedly processing the same insurance claim.
Processing claims manually takes time and is a tedious process. Since claims are an insurance company’s liability and clients anticipate a fair and prompt response in the event of a disaster, the efficiency of processing claims affects both the income of the insurance firms and customer satisfaction.
Organizations operate cautiously and invest a lot of time and money in vendors when finalizing agreements because of a lack of transparency and trust. Smart contracts are the need of the hour as they use blockchain technology to increase transparency and trust between two parties and enable open and accessible contracts.
A blockchain-based smart contract is a piece of computer code that promotes safe value exchange. They convert paper contracts into programmable code and create coverage standards for all parties involved in the claim.
Smart contracts are used to automate the implementation of an agreement so that all parties can be certain of the conclusion right away, without the need for a middleman. As they are digital and automated, there is no paperwork to be completed or time spent fixing errors that frequently occur when documents are manually filled.
With a 32% compounded annual growth rate (CAGR), the market for smart contracts is predicted to grow to 300 USD million by 2023 due to its efficiency in terms of cost, time, security and accuracy. Dynamis is one such blockchain startup advancing smart contracts for insurance products. It’s creating a P2P supplemental unemployment insurance and confirms the employer’s status using information from social network profiles.
3. Data Availability
As insurance involves a pricing risk procedure, underwriting plays an important role in this. Underwriting is the process by which insurers determine the probability of a loss that may involve persons, automobiles, buildings or other assets.
Based on the data availability, insurance companies determine what is covered by plans or how much premiums are to be charged. But it’s challenging for insurance companies to access customer data as they need to maintain confidentiality.
Blockchain, with its cryptographic security, enables the sharing of such private information without jeopardizing confidentiality. Blockchain also makes risk assessment and underwriting procedures more effective, all of which eventually leads to more reasonable premiums for customers.
The insurance industry is fast realizing the benefits of blockchain and readily collaborating with organizations to implement it in several critical processes. The main focus of these collaborations is to prevent fraud, manage identities, automate insurance claims and more.
Traditional insurance companies are developing their internal blockchain systems or working with blockchain startups. For instance:
- AXA Partners have teamed up with Swedish Public Employment Service, JobTech and technology provider Stratumn to expand its insurance solutions. They have produced a blockchain-based app named Fizzy whose main goal is to secure and automate parametric insurance against delayed flights.
- The Ping An Group has collaborated with the blockchain and fintech company R3. To create blockchain solutions, it has also worked with other businesses including SingularityNET and Finleap.
- KPMG has partnered with IntellectEU, a leader in digital finance and new technologies, to create solutions for combating insurance fraud.
Blockchain can help insurers grow by enhancing client engagement, enabling cost-effective product offers for emerging countries and facilitating the creation of IoT-related insurance products. The endgame of insurance companies leveraging blockchain would be building authority with their customers, improved customer service, quicker delivery of insurance claims, enhanced efficiency, and reduction in claim-related costs.
Every insurance company which adopts blockchain must agree to do business by following ethical norms, even though blockchain can significantly benefit the industry in terms of accuracy, efficiency, privacy and more. It must be developed further as the sector has significant privacy and security issues.
Insurance companies must chart clear regulatory frameworks to use blockchain technology responsibly. Blockchain has the potential to significantly alter the insurance industry for businesses and their clients once these demands are satisfied.