How will it change the industry?
Blockchain technology is poised for exploration by insurance companies. The traditional insurance industry is dependent on paper contracts. Furthermore, people have to call by phone to learn about new guidelines. The probability of error is also high, and the manually collected data can be lost or misinterpreted. And here comes, Blockchain in insurance come into the picture where you can transform the traditional insurance industry.
Blockchain is a trendy technology buzzword, a digital ledger that carries transaction records called a block in different databases called the chain in a connected network via nodes.
In this article you will get to know how an intelligent insurance company can use Blockchain technology to change its insurance business. Let us begin:
Advantages of blockchain in the insurance industry
Insurance blockchain offers many advantages, such as cost-effective, transparent, reliable and long-lasting solutions. But that’s not all. The following are some more benefits of implementing blockchain technology in the insurance industry. Let’s take a look at it.
1. Simplifies the processing of claims
Blockchain helps automate claims by verifying documents between reinsurers and companies. Moreover, it can also help to automate transactions between two or more parties for claims. This can help insurance companies by reducing administrative expenses.
2. Improve efficiency
Blockchain can help with efficiency gains. It enables fast payments and transparency while securely verifying data sharing to different parties. As we know most insurance procedures are manual and blockchain technology can help with less paperwork of insurance contracts for one good customer experience.
3. Builds trust
When insurance contract transactions are secure, verifiable and authentic, it creates a sense of trust among the transacting parties. Fortunately, you can take advantage of all these benefits from cryptography in the Blockchain.
4. Supports smart contracts
Smart contracts are one of the key ways that blockchain technology will help the insurance sector. Over 1,700 of the 3,000 counties in the US have an e-records platform. Many banks are implementing technologies that turn paper documents into e-documents. Smart contracts are becoming more widespread with the widespread acceptance of this technology.
5. Reduce administrative costs
Blockchain technology helps users with automated verification of the policyholder’s identity, control of contract validity, verifiable claim registration and data from third parties. Blockchain technology can reduce costs by 15% to 25%.
How can Blockchain affect the insurance industry?
It is ideal to say that Blockchain in insurance help reduce the costs of administration, complaints, product development and underwriting. Initial areas taken for crypto insurance companies include the use of Blockchain to create automation in paying returns. In addition, blockchain creates smart contracts between insurers and companies, offering transparency and reliability.
Let’s check out in detail how the insurance industry can be transformed by blockchain.
1. Impact on registration of guarantees and expensive goods
Blockchain offers reliable product details for the benefit of stakeholders. Furthermore, it provides industry-wide efforts to reduce fraudulent claims. It can also track item claims and ownership in real time.
2. Impact on AML/KYC methods
Blockchain secures customer information that can be shared between companies. Using Blockchain also reduces the risk of errors and duplication of KYC work. Furthermore, it helps to increase the visibility of clients’ activities across companies and offer better compliance.
3. Impact on index-based insurance
Index-based insurance or parametric insurance provides pre-listed payments according to trigger events. Blockchain can help automate entire index-based insurance parts. Furthermore, blockchain technology can remove and manage all transactions, excluding manual intervention. It also facilitates emergency bonds and related insurance claims, flight cancellations, delays, food crop insurance and much more.
4. Impact on claims handling
Using Blockchain in Insurance, you can create a solid overview of requirements. It further gives policyholders free access to their data. It also has data silos (vaults) to reduce claims fraud.
5. Impact on insurance distribution
Blockchain allows you to transact for claims quickly. Furthermore, Blockchain adjusts the actions of different parties at reasonable costs. It also gives users direct access to multiple operators and allows them to manage other policies on a single platform.
6. Impact on data collection and storage
In Blockchain, data is stored in blocks; once saved, it cannot be changed. Blockchain can collect data using other technologies such as the Internet of Things (IoT) and Artificial Intelligence (AI). For example, a company may offer a low premium for health insurance based on factors such as oxygen saturation, sleep duration, etc. IoT devices collect data, which is then held on a blockchain. Finally, the business will use AI to analyze the data stored on Blockchain and determine the insurance premium.
Best use cases of blockchain applications in the insurance industry
Blockchain technology offers clear and detailed information to innovative insurance companies and customers through a valid database to make the right decision. Let’s look at real blockchain use cases in the insurance industry to leverage the technology benefits.
1. Fraud detection
Despite complete digitization in many developed economies such as the United States, a high level of insurance fraud takes place. For example, there is a loss of $40+ billion a year due to fraud across non-health insurance.
Luckily, Blockchain in insurance ensures that every transaction made on the ledger is permanent and immutable. This creates an obstacle for any fraudsters to intercept Blockchain data. This helps smart insurers detect fraud and prevent it on the spot.
2. Reinsurance
According to PwC statistics, reinsurance companies can save up to $5 to $10 billion by using Blockchain. Reinsurance or wholesale insurance means insurance for many insurance companies. Today, reinsurance industries mainly focus on increasing their overall efficiency to achieve higher profits in the market. Blockchain can make the insurance process easy for multiple users (insurance companies) by eliminating the need for various data completions and task duplication.
Another big win off blockchain smart contracts for insurance and insurance is “full transparency.” When all risks are the basis of a blockchain, these can easily be collected on a reinsurance blockchain. This further ensures that all data, transfers and documents flow into your insurance.
3. On-Demand Insurance
Blockchain includes records (ledger entries) that can make processing insurance on demand easy. Flexible insurance, where insurance companies can enter or exit their policies with a single click, is called “on-demand insurance”.
Blockchain, a digital record technology, can cut all the extra requirements of on-demand insurance such as documents, buyer registrations, risk, costing, claims and many more.
4. Proof of ownership and asset tracking
Property registrations for vehicles or homes can be fed into the DLT (distributed ledger technology) system. Furthermore, insurance companies must build ownership of insured assets and can then track the transfer of their ownerships.
Blockchain allows innovative insurance companies to track the transactions of valuable online assets via “tokenization”, the process of tracking/transferring them.
5. Peer-to-peer insurance
Peer-to-peer insurance funds via blockchain technology have emerged in recent years. Using the P2P insurance model, you get a digital wallet where users deposit their amount into an escrow-like account. They then use this amount for claim transactions instead of an old insurance payout process.
Generally, groups of people who are not individually eligible for special insurance coverage can treat decentralized trust in blockchain to secure the group. They do so by sharing the risk that is distributed.
6. Blockchain in health and life insurance
Health and life insurance companies are one of the many stakeholder groups that are busy figuring out how blockchain technology can be used to improve this field. Key questions include how blockchain technology can manage risk, reduce costs and improve user experience.
In the healthcare sector, Blockchain helps researchers discover new codes. It achieves this by encouraging secure transfers of patient medical details, drug supply chain management and clinical trials for better health outcomes.
7. Microinsurance in emerging markets
Compared to an all-inclusive policy, microinsurance protects against specific perils for recurring premium payments significantly less than regular insurance. However, micro-insurance schemes may sometimes not seem economically viable due to labor-intensive administrative procedures and high fees for small payments.
But with Blockchain, microinsurance initiatives in emerging markets can automate underwriting and claims processing based on pre-defined rules and make it easy to facilitate payouts to insured individuals.
What are smart contracts in insurance?
Smart contracts allow blockchain users to transfer valuable items transparently without an intermediary. The differences between physical and smart contracts for insurance is as follows:
- Physical contracts take 1 to 3 days, while smart contracts take a few minutes.
- There is a need for an intermediary or lawyer in the physical contract. But at the same time, the presence of a lawyer is not necessary for intelligent contracts.
- Physical contracts are expensive, while intelligent contracts are quite affordable.
In other words, smart contracts are programs recorded on a blockchain that work when pre-set terms and conditions are met. Also, smart contracts are fed into the Blockchain to ensure they are secure, traceable and transparent.
To conclude
The future of the insurance industry is expected to reach USD 1,393.8 million by the end of 2023. Blockchain is a better technology for the insurance sector as it offers transparent, clear and secure transactions. Therefore, using Blockchain in insurance will provide cost savings and faster auditable and more accurate payments.
