Blockchain in Insurance- How the Technology is changing the Insurance Face?
Blockchain has successfully transformed many industries, giving a whole new picture to the end customer. One such industry is the insurance which is facing an exciting transformation. The technology update in the insurance has given advancements coupled with changes in customer lifestyles and service provide. Insurance companies are implementing blockchain and Internet of Things (IoT) which strongly defines the changing course of the industry. Smart contracts based on the sensor are driving automated claims settlements in the insurance.
For instance, in travel insurance, many customers rather forego filing a claim for situations like flight delays rather than with tedious claims. Many companies, including AXA are re-defining the sector by offering parametric insurance policies enabling to get auto-paid without filing the claims.
Blockchain is certainly the best distributed ledger system falling under the revolutionary form of shared record-keeping. One reason why insurance companies are adopting blockchain is to prevent insurance fraud and follow digitally tracking medical records. The market size of blockchain in insurance is huge and is growing rapidly. In the year 2017, the market was valued $43.0 million and is set to reach USD 1,393.8 million by 2023, at a Compound Annual Growth Rate (CAGR) of 84.9%.
Before we get into the learning how this ledge technology will change the industry, let us first check how the blockchain works:
Blockchain is basically a data protocol allowing non-trusted partners and potential conflicts of interest to collaborate and complete the transaction validity. This is completely transparent process depending on the impartial and systematic process, which will generate digital and chronological ledger. In the initial stage, Blockchain was a protocol supporting recording transactions and the cryptocurrency bitcoin transferred between two individuals. But as the times changing, Blockchain technology has evolved largely to become a protocol allowing to record the transaction.
One of the advances in blockchain is its usage as a ledger that can register transactions and maintenance of physical assets. In addition to this, the blockchain not just registers transaction, but also houses programmable code, in the form of smart contracts.
What makes it trending even in the insurance industry?
Every transaction conducted in Blockchain is time-shaped, so whoever connected to the system is able to trace its origin and destination. In case of insurance company, database is the key, and the blockchain is the internet based smart database which is highly secured. Some of the benefits insurance companies have with the blockchain implementation are-
- Simplification of processes
- Reduction in premiums
- Fraud Prevention
- Better claim experience
- Improved KYC compliance
Benefits insurance industry can have with Blockchain:
- Bring down the Identity Theft:
One of the problems faced by the insurance industry is the increasing case of false claims. Along with this is the time taken for validating each application. With the implementation of blockchain, the user will get the distributed register having both internal and external data.
- Decentralized Data Repository:
Security is the major issue faced by insurance companies. From data to large data from insurance to banking, there is a huge possibility of security breach to the third party. With the implementation of Blockchain, the data isn't available in the central location. So the entire data is safe and there is no question of breaching of data.
Let get deeper on how Insurance can witness change with Blockchain:
Detection and Risk Prevention:
Today, the insurance industry follows the complex nature of work, creating gaps in visibility resulting to perpetrate fraud. In general, claims are shuffled from insurers and reinsurers in a slow and paper-work process. This creates more opportunities for criminals making multiple claims to different insurers. In the US itself, the estimated loss every year insurance company face is $40 Billion. Blockchain technology allows better coordination between insurers to work against the fraud. All the information is now stored in shared ledger helping insurers to collaborate and identify behavior.
There are three benefits under this:
- Eliminates double booking
- Establishes ownership
- Reduces premium diversion
With fewer frauds, insurance companies can have higher margin. This is the biggest benefit insurance companies can have.
Property and Casualty Insurance:
One of the biggest challenges property and casualty insurance faces while insuring items like houses and cars. Presently, there are many errors take place that brings loss. With Blockchain technology, policy holders and insurers can track and manage the physical assets. It is the most compelling issue which needs to be sorted using modern technology.
Health insurance is facing a huge inefficient ecosystem which needs a proper system to work on. Usually, single patient visits multiple doctors during the lifetime. Since there are different parties involved, coordinating under sensitive medical data between them is quite a hectic task. By adopting blockchain which is secured by cryptographic will help in maintaining patient's privacy. The technology an also control data of the patient and give access to doctors on case-by-case basis.
Let us now check how Blockchain is disrupting the Insurance industry:
- Blocking False Claims:
As mentioned above, insurance companies face huge cases of fraudulent. In fact, in the US, insurance fraud crosses $80 Billion yearly. There are many false claims using modern scheming methods using which companies are duped. Using blockchain, the company has the feature of capturing time-stamped transactions making it difficult for fraudsters. Blockchain power risk ledger is used for tracking the data around high-value items and jewelry.
- Enhanced customer experience:
For customers, insurance companies using modern technology could be a boost in getting the service. Customers usually prefer taking service from companies offering low premiums. This intensifies the competition and you, as a leading premium will lose the client. So to win the customer, investing on the blockchain could work best. Blockchain enables to automate processing with the use of 'smart contracts". The entire process is done using technology, with no manual intervention. With this, insurers can avoid tedious claims and verification process.
- Digital Savvy Customer Friendly:
Today, every other person is tech user and looks for a service that is complete digitally oriented. To successfully reach out to this dynamic market, insurers will need to work on innovative offering. Concept of blockchain technology and connected devices can give more scope to different models of insurance. Insurance customers seeking premiums or policies will look company that offer tech savvy services.
- Improvement in claim processing through Smart Contracts:
Blockchain's smart contract will help insured and insurer to work on claim processing. Long contract process is really a time consuming, which is now replaced by smart contract. With blockchain and smart contracts, both parties will enjoy the benefit of claiming process in a complete transparent way. Starting from the recording and verifying to, submission of claims. The network will come to know if there were any multiple claims by similar person. When the criterion is met, then blockchain could trigger payment of the claim.
- Improvements needed in adopting Blockchain in Insurance:
Although adopting blockchain will change the face of insurance, but implementing it is a task. There are number of improvements needed doing this. Let us check some of the improvements;
Smart Contract Security:
Smart contracts are now a powerful tool allowing insurance claims to be in the same line. It is completely encoded within the blockchain. Developer tools and some practices still require growth and are still immature.
When an individual takes insurance, he should be certain that the policy is effective enough. The binding process should be final having no chance of reverting later. For public blockchain, the probability of a transaction is estimated and depends on the economics. This is something difficult to adopt.
Both slow block time and full blocks results into poor user experience making it people to understand in the first place. They expect that the entire process is simple and fast. Upon using the blockchain, one can wait up to 30 minutes before the transaction is complete.
Privacy is biggest challenges, although with blockchain it can be worked upon. Unless the advanced cryptography is utilized, attackers can figure out the insurance policy the individual has taken. Although there are several undertakings to overcome this challenge and still in the experimental basis, but insurance companies need to work hard on the privacy thing even after implementing the blockchain technology.
Check out this brief explanation by Michael Folkson, founder of RiskBazaar, providing complete information on how blockchain is disruption in insurance industry
Future of Insurance companies adopting Blockchain Technology:
When it comes to the future of insurance companies using blockchain, the future is quite bright. From adopting new technology for easy processing of claim to giving fast and secured service, the future is really promising. Many insurance companies have already adopted this new technology. In China, Trust Mutual Life has already developed a platform featuring blockchain and biological identification technology. In the year 2017, the company introduced 'Courtesy Help Account", complete blockchain-based mutual life insurance products allowing every member can follow the fund.
Not only these, Chinese insurers are also working blockchain-based agricultural insurance. The best example is the Livestock insurance platform by PICC and is limited to cows. Every cow is registered under the blockchain-based platform in the whole life-cycle.
When it comes to coping with claim frauds, a Canadian based company, Quebec Auto Insurance regulator implemented blockchain based information exchange platform. Right from the driver information to auto insurance information shared on single platform.
Overall, blockchain technology is certainly the biggest change happening in the insurance industry. However, to get the best result, insurance companies need to skillfully align standards with blockchain technology will help in collaborating and sharing data without any breach. Since, the insurance industry is regulated for protecting the policy holder and avoids taking any risk. Blockchain technology still requires a good regulation monitored by the respective government. Moreover, insurance agents need a proper training to use this new age technology.