Insurance, which has traditionally been one of the most conservative, bureaucratic, and walled sectors, is waking up and exploring new technology. Customers’ increased mistrust in centralized financial services has led to high rates of underinsurance, which has sparked the company’s modest but steady interest in technologies, especially blockchain.
Insurance firms are looking for blockchain developers to help them out, driven by both interest and fear. The promise of saving time and lowering transaction costs has piqued people’s interest in blockchain. Insurers, on the other hand, are wary of this innovation because it may open up new avenues for cyber-attacks.
Let’s start with a definition of blockchain in the light of insurance.
The distributed ledger theory underpins blockchain technology, which removes the need for intermediaries. Any endorsed insurance provider, agent, broker, or underwriter has access to the same source of data modified in real-time because copies of the shared ledger are stored across various users’ locations. On a blockchain, all transactions are authenticated and encrypted, and all updates to records are published as additions to the original data.
The practical application may be as follows: medical records can be encrypted and exchanged between hospitals and insurers (even across borders) using blockchain, reducing duplicated and incorrect records, lengthy claim processing, claim denials, and unnecessary checkups.
How is blockchain technology being implemented in the insurance sector?
For many years, insurance firms have been experimenting with blockchain and distributed ledger technology (DLT). Many insurtech firms are now testing radical new products to meet the ever-changing needs of insurance customers in the digital era. However, blockchain isn’t only for insurtech; incumbent insurers and reinsurers are using the platform to boost consumer and carrier outcomes.
Let’s examine three use cases of blockchain in the insurtech industry:
Fraud and abuse prevention
Fraud costs the insurance industry a fortune, mostly because regular approaches based on publicly accessible data and private data sources are incapable of detecting fraudulent activities. As a result of the legal restrictions that come with personally identifiable information, the collected data is normally scattered.
Unfortunately, fraudsters are taking advantage of these blind spots. For example, for a single case of treatment, multiple claims may be filed.
Cryptographic signatures and granular permission settings are used to encrypt data stored on a blockchain-based ledger. It means that without disclosing confidential details, both parties can exchange data and check its authenticity. A shared decentralized ledger enables businesses to consolidate historical data and detect suspicious trends, such as:
- The same claim is processed several times.
- Manipulation of an insurance policy’s ownership
- Brokers that aren’t certified sell insurance.
Insurance companies will provide consumers with encrypted digital ID cards that can’t be faked for even further protection.
Improved transparency and trust
For a reason, insurance firms are referred to as “walled gardens.” Customers have very little access to information on how their data is handled. They will never realize, for example, that their information is exchanged with third parties. It’s no surprise that consumers mistrust insurance companies, particularly when they face long claim processing times or claim denials—all while premiums continue to rise.
If several insurance providers want to add data to the same decentralized and shared ledger, however, three major benefits can be realized:
Insurance firms can create more detailed profiles of their customers and remove duplicate records. The insurance firms would have no doubts about the data in the blockchain database because it is permanent.
Customers will be able to see what details their insurers have on them and how it is used. Furthermore, as blockchain is combined with machine learning and artificial intelligence, claim analysis can be automated, resulting in faster payouts.
Blockchain allows third-party claims or transfers made by personal devices to be automatically verified. The insurance firm would later be able to see all of the transactions that have been recorded on the blockchain.
Streamlined claim management
It takes a lot of time and effort to sell and manage insurance policies. In the competitive world, insurance firms that cling to sluggish, paper-intensive conventional methods lose out to more digitally savvy rivals. By automating claim processing, the latter will deliver lower premiums.
Smart contracts, which are becoming increasingly common in property and casualty insurance, will automate some of the processes. When used in conjunction with connected devices, a smart contract will automatically process claims when anti-theft sensors, for example, go off under pre-programmed conditions.
Efficient insurance management, on the other hand, necessitates increased confidence from both insurers and customers. The most effective way to achieve this equilibrium is to build a blockchain-based ecosystem with a large number of high-profile participants. The Bank of China is a good example of this, as it recently collaborated with major insurance firms and unveiled its blockchain. When new records are added to the blockchain, distributed ledger technology assists in updating and validating the data against other records in the network, lowering operating costs while also ensuring transaction security.
Another aspect that delays claim management is the need for bank transfers, which is addressed by distributed ledger technology. Customers usually do not see payouts in their accounts for several weeks. Payouts can be processed without major delays when banks and insurers have a centralized system they trust.
Blockchain technology is a critical component in changing the insurance industry and assisting it in breaking away from obsolete practices. Customers expect transparency, speed, and cost flexibility, so insurance innovation is crucial. Blockchain is designed to fulfill these desires and to address the unique needs of all participants.
People would have more confidence in their insurance providers if there is little or no possibility of fraud. There’s no space for friction when nuanced policy claims are processed 10 times faster. Simultaneously, as claim processing becomes more streamlined, insurers may have more pricing flexibility.
Furthermore, the use cases covered are just the beginning. The insurance industry will expand its innovation ecosystem by creating better case management, audit, and risk modeling products as more blockchain-based applications go live and more companies form partnerships.
The insurance industry is plagued by a slew of organizational inefficiencies, including difficult claims processing, a mountain of paperwork that leads to poor customer service, and fraud.
And there’s the blockchain. A decentralized framework that gives stakeholders the resources they need to increase operational performance.
It acts as a global platform for the efficient flow of data sources and transactions.
Blockchain began as the foundational technology for the virtual currency Bitcoin. It turns out that the technology has many more applications. There is a high demand for blockchain professionals and blockchain platforms, with more people turning about to blockchain councils to learn blockchain technology. It wouldn’t be too long before blockchain revolutionized the entire insurtech infrastructure.