How Blockchain Can Improve Insurance: Improved Reliability and Speed

Insurance is one of the industries that actively introduces technology into its processes. By 2021, 59% of insurers increased their investment in innovation to show customers new and better ways to deliver services, collect data and detect fraud. Currently, blockchain technology makes up a small but significant part of InsurTech’s innovations. And it has already proven to be a good solution to many of the industry’s problems. Let’s consider three options for how blockchain affects insurance.

Is blockchain a silver bullet to solve the problems in the insurance industry?

As a distributed ledger technology, blockchain has properties that are valuable to businesses. It reliably protects data, records only verified information, and monitors and stops illegal actions by network members. Blockchain can be trusted to store all data (accounts, transactions or medical records). This allows you to transact with them quickly, honestly and without intermediaries.

These blockchain attributes can be used to distribute insurance by enhancing the following operations:

The mechanism for blockchain operation in insurance can be described as follows. A client receives approval from an insurance company to issue a policy. Policy data is entered into a blockchain (date and time of opening, the parties to the contract and the cost of individual contributions). The information is placed in a block, encrypted and stored unchanged. Blockchain technology guarantees that none of the network participants can illegally change or compromise user data.

Claims processing and blockchain

Imagine the following situation. A person purchased a first class flight ticket along with insurance. But they had to cancel the trip for important reasons, and it is necessary to return the money paid to the insurance company. How long does it take to get a refund? About 7 days, no less.

As a rule, insurance companies process claims for weeks or months. Consumers who are used to fast service in trade expect the same in other areas. But in insurance, the process is not so fast. A person must submit a claim request by phone or via a mobile app. After that, they will wait until the application is completed and processed and then payments will be credited to their account.

Claims processing is gradually accelerating, bringing the industry closer to the “insurance on the go” paradigm. The industry already offers short-term insurance options for overseas travel or taxi rides. Why can’t insurance claims be processed at the same pace so that funds are returned on request?

With blockchain, it is possible to build a transparent and client-oriented model based on trust and security. Technology can provide direct communication between the applicant, the insurance agent and third parties. All data is available for audit and insurance payments are made immediately.

For example, Sompo Japan Insurance uses blockchain for automatic payment of train delay insurance. If delays are recorded in rail transport within one month, the client will receive compensation.

Underwriting in blockchain

Underwriting in insurance involves the analysis and evaluation of various parameters: the reliability of a client, the determination of an insurance rate, the coordination of insurance conditions and the formation of the insurance portfolio. The smallest details are taken into account: from the client’s income to an alarm or fire system in the house. After all, if you make a mistake with the candidature, the insurance company will suffer regular losses.

Blockchain can reduce potential risk and choose more affordable insurance prices for customers. For example, insurance companies can optimize the price with the number of policies paid for car theft in the same area. Smart contracts turn paper agreements into programmable code that helps automate underwriting and claims processing.

AIG, Standard Chartered and IBM practice blockchain-based underwriting for multinational insurance. It is difficult to coordinate the management of insurance policies across several countries. The team converted the policies into a smart contract that provides a real-time shared view of policy data and documentation. In this way, insurance agents can easily track coverage and payouts at the local and master level, as well as automatically report payouts to network members.

Blockchain for customer retention

The advantages of blockchain listed above (automation, high speed of claims processing and low insurance fees) become the basis for attracting and retaining customers. This is what companies of all levels strive for in a competitive market, especially when planning to develop new applications and when ordering BAAS.

With blockchain, insurance companies can improve loyalty programs. For example, bonus points for fulfilling certain conditions can be “transferred” to virtual loyalty platforms. There, users can exchange bonuses for gift cards and discounts or transfer points to loyalty programs from other companies that are valuable to users. In this way, customers can exchange their flight points for shop, restaurant or cinema points. This approach provides freedom of choice and guarantees customer involvement.

Metromile, for example, uses blockchain to pay premiums to drivers who travel a certain number of miles at the end of the year. The company believes that in this way it will ensure fair insurance and consumer involvement. The firm is also considering converting payments to digital currency.

Conclusion

Blockchain will help the insurance industry build business models that will solve industry challenges and help interact with customers most effectively. The technology simplifies the procedure for approving a candidate for an insurance policy, automates the processing of claims and insurance payments, and increases customer retention. It helps the industry become mobile and advanced. Former CEO of AIG’s commercial division, Mr. Rob Schimek, said blockchain could play an important role in the future of insurance. His company is excited to offer innovations that are important to customers and to co-develop the key components of this new technology.