When most people think of blockchain technology disrupting industries, they normally don’t think of the insurance sector first. However, blockchain technology can be applied in any sector, including this one.
In fact, it has already had a greater impact on insurance than most people realize and will continue to do so in the future.
Blockchain in insurance is still in the fairly early steps, making this the perfect time for insurance companies to begin taking advantage of the technology. If they can harness it now for internal applications, they will be poised to expand their use of blockchain and take advantage of industry-wide use cases as they arrive.
Blockchain in Insurance to Build Trust
As insurance companies adopt blockchain technologies, consumers will appreciate a sense of increased trust for those companies. At the moment, clients have very little trust for those in insurance, something that plays a role in the number of uninsured people. The blockchain fights this lack of trust directly at the source thanks to its transparency.
The blockchain records every single transaction that takes place, making it easy to see what an insurance company does. This could give customers more faith that the company will do what it promises.
After all, insurance agencies cannot hide their actions if everything is recorded on the blockchain and can be accessed by the public.
Blockchain in Insurance Data Efficiency and Privacy
To look at how blockchain improves insurance efficiency and the insurance industry as a whole, look no further than the data insurance providers require. They need to store vast amounts of information on each client, depending on the use case, including their health provider information, medical history, procedures they have done, coverage level and more.
If a person changes insurance companies, the process is currently very inefficient, requiring patients to fill out extensive forms and verify information, possibly multiple times.
However, the blockchain can improve this process. If each patient stores their individual information on the blockchain, they can simply change who they share this data with when they choose to switch insurance companies.
There is minimal risk when storing this data on the blockchain due to the highly secure nature of it and the options for private chains instead of public ones. This is also a healthcare application that will let patients easily switch doctors or go to specialists with referrals without having to fill out extensive medical histories.
While the patient is already in control of this information, it would make sense for them to simply extend the groups they share their medical data with to include their insurance company.
Unfortunately, because of the sheer amount of information involved and the fact that this type of data storage on the blockchain would have to become an insurance and healthcare standard, this type of application is still further in the future than some others.
Nevertheless, developers and companies are working on bringing it to fruition, so it may arrive sooner than we think. The developers working toward this goal aim to create a standard system with blockchain data storage that includes verification of information for accuracy.
Blockchain in Insurance Onboarding
Right from the start of an interaction between clients and insurance companies, blockchain technology can play a role. To onboard new customers, businesses need KYC data, such as name, date of birth, address and economic and health status.
This process is known for causing delays as information is verified to meet due diligence. The companies often also have to spend resources resolving errors during the process.
With the blockchain, this entire process would be seamless. The necessary documentation would already be on the blockchain’s distributed network. It would be private with permission only granted to certain people and entities.
During onboarding, the potential client would grant permission for the insurer to access the information. From there, the insurer would only need to verify the cryptographic security to confirm nothing had been altered and everything was ready to go.
Blockchain in Insurance for Claims Processing
Anyone who works for an insurance company or has tried to take advantage of their personal insurance at some point knows that claims processing is fraught with troubles. Most of the problems related to processing claims can be resolved via smart contracts and the blockchain.
People with insurance tend to view insurance contracts as wordy, confusing, and long, while insurance companies have to fight against fraud.
Smart contracts can resolve both issues. The insurance company’s contracts would be transparent, and smart contracts would ensure they were always executed as the company say they should be, giving the insured peace of mind.
At the same time, insurance companies could protect against fraud since the smart contracts would only execute when the correct conditions were met, which would be impossible in a fraudulent situation.
The process would begin by recording and then verifying insurance contracts via the blockchain. When someone submits a claim, it would be up to the blockchain to confirm that the claim was valid. Valid claims would then be paid while invalid ones would not.
The blockchain could also prevent against multiple claims being filed for a single accident. Not only would the blockchain determine if a claim should be paid, it could also trigger this payment automatically without the need for a human to take any action.
The insured and insurance companies alike would benefit from a streamlined process with less room for human error or the risk of paperwork getting tied up in administration for an extended period.
Blockchain in Insurance to Detect and Prevent Fraud
From the perspective of insurance companies, blockchain technology is a money-saving tool that could do wonders for preventing and detecting fraud. Some estimates say that every year, U.S. health insurers have to spend over $40 billion on fraudulent claims. That translates into the average American family paying an extra $400 to $700 each year in higher premiums.
Blockchain technology is perfectly equipped to detect fraud since one of the core functions of a blockchain is validation. The decentralized information, as well as historical records stored on the blockchain, can efficiently verify customers, transactions, and policies to ensure that everything is authentic.
Additionally, insurance agencies can collaborate, storing information regarding claims within a shared ledger so they can identify suspicious claims across the entire ecosystem.
The only caveat is that for this ability to detect and prevent fraud with the blockchain, everyone has to work together. Insurers, customers, manufacturers, and others would have to work together. It would be worth it though.
Since insurance companies would no longer have to waste resources trying to determine whether a claim was fraudulent, insurance premiums might go down, something clients would appreciate. In this way, both the company and the insured person would save money.
Enabling a large-scale system where insurance companies work together to prevent fraud would be a significant undertaking with a very large payout. It would prevent accidentally processing several claims from a single accident, establish ownership via digital certificates to reduce counterfeiting, and reduce premium diversion.
An example of this premium diversion would be unlicensed brokers choosing to sell insurance and just pocketing the premiums.
An example would be a blockchain platform such as Everledger, which has a ledger outlining diamond ownerships for insurers, buyers, and sellers. So far, it has digitized 1.6 million diamonds with a laser-etched fingerprint.
In a sample scenario, the owner of a diamond falsely claims their diamonds were stolen, filing an insurance claim. If the owner counterfeits the certificates for these diamonds and attempts to sell them, it would be obvious that the diamonds in question were the ones reported stolen thanks to the information on Everledger.
In this case, if the diamonds reappeared, the insurance company would find out and can simply repossess the diamonds.
Blockchain in Casualty and Property Insurance
Property and casualty insurance (P&C insurance) insure things like cars and houses. At the moment, one of the largest challenges in this sector is getting sufficient information to evaluate and then process claims. As it currently stands, this requires manual data entry along with coordination between various parties.
Blockchain technology could allow the insurers and policyholders to track and manage their physical assets digitally. In this way, it would codify the business rules and automate the processing of making a claim via smart contracts. At the same time, the permanent audit trail would come from the blockchain ledger.
With smart contracts, paper contracts become programmable code that can run automatically. Traditionally, if you are in an automotive accident where the other driver is at fault, you would submit your claim to your own insurance company, who would then check your claim for validity before recovering the claim for the other driver’s company.
Everything would be automatically triggered in succession, saving the insurance company time and giving the insured person a quicker response time and payout.
Any type of coverage can be set up with a smart contract that automatically confirms coverage when a person submits a claim. From there, it could trigger requests for manual reviews in particular situations outlined in the code.
In the case of flight insurance, smart contracts could get information from air traffic control databases and then automatically compensate the insured for cancellations.
Allianz Insurance recently started using a prototype of this type built on the Hyperledger Fabric blockchain. The blockchain accepts instructions and payout contracts via Citi’s CitiConnect API, working with property and professional insurance.
This prototype already records premium payments, claims processing and policy renewals, all with the goal of simplifying transaction flow and eliminating the need for thousands of emails with large attachments.
Blockchain in Insurance Underwriting
During the underwriting process, an insurer evaluates how much risk is involved in giving clients their policy, as well as how much clients must pay and what coverage they will get. In the case of larger corporate policies, this can take months or even a year.
The blockchain will speed up the process by including external data that can deliver semiautomatic pricing and decrease risk liability. The result is a shortened underwriting process with more automation, delivering operational savings to the insurer.
Blockchain Uses for Reinsurance
Another often-overlooked area of insurance is reinsurance, which provides insurance for the insurers using an inefficient system involving manual processes and one-off contracts. Reinsurance may cover particular risks (like hurricanes) or a proportion of the insurer’s risk during a specific time.
With the information stored on the blockchain’s immutable ledger, reinsurers would be better able to allocate the capital needed for claims in almost real-time. This allows for processing and settling of claims quickly, without relying on the primary insurer.
Another problem is that every risk within a contract currently must be underwritten individually, with contracts typically taking as long as three months to narrow down the details. To make it more complicated, insurers typically hire multiple reinsurers who then need to exchange information among themselves, something that is made harder thanks to differing standards by companies.
The blockchain can streamline the entire information flow from insurers to reinsurers and back via the shared ledger. The detailed ledgers show the relevant information to both parties at the same time, even if multiple reinsurers are involved. This way, there isn’t any time wasted reconciling books between various institutions.
Adopting Blockchain in Insurance
As with adopting blockchain technology in other industries, experts suggest bringing it into the insurance industry step by step. This begins with internal proofs, such as testing out blockchain technology by processing internal claims using smart contracts or reconciling customer data.
From there, they can move onto processes that directly interact with the customer and finally proceed to the larger picture with blockchain-based interactions with other insurance companies and those in related segments.
As with other industries, using blockchain technology in insurance could lead to dramatic changes. From improvements in efficiency to preventing fraud to allowing automatic claim processing, the potential benefits of the blockchain for the insurance industry are vast.
Much work is still necessary for blockchain technology to reach its full potential in this industry. However, multiple companies are already taking steps toward a future where insurance takes advantage of the blockchain.
As blockchain technology continues to grow and expand, it’s worth noting the best blockchain protocols available currently, such as Bitcoin, Ethereum, and the Ripple Consensus Network.