Common ways of sustaining centralized data and trust have resulted in fragmented organizations and ineffective technology systems. Nevertheless, in a collective and collaborative economy, trust comes from transparency. It is proposed by blockchain participants with the ability to share an updated account book each time a transaction occurs via peer-to-peer replication.
Blockchain is making its way into all companies around the world for a reason: it’s light, fast, smart, and cheap. It’s time to apply blockchain to insurance, following exciting new and successful advances in other commercial areas, from medicine and logistics to real estate.
In the article, we will discuss what is blockchain, its importance for the insurance industry, its advantages, examples, and use cases. So, let’s dive into the topic!
Table of Contents
First, let’s explain what a blockchain is. So, it is a technology based on the principle of a distributed ledger, which resolves the need for facilitators. Copies of the general ledger are stored in different user locations, giving any approved insurance company, agent, broker, or insurer access to the same real-time data source. All registered transactions are verified and encrypted, and all changes to records are published as additions to the original data.
Through its three pillars – trust, transparency and immutability – the blockchain provides a single source of truth that is updated in real or near real-time. This allows parties to maintain complex records of assets, contracts and data ownership without physically possessing them or relying on paperwork or intermediaries. For the financial services industry, this means that the results will be more definite, as there is less room for interpretation of contracts or information gaps.
Due to blockchain, medical records can be encrypted and shared with hospitals and insurers (even overseas), thereby reducing duplicate and erroneous records, lengthy claims processing, claim denials, and over-checking.
Let’s start with some numbers. Jim Bramblet in the “Ultimate Guide to Blockchain in Insurance” states that 46% of insurers plan to integrate blockchain in the next couple of years, and 84% of insurers are sure that blockchain will revolutionize the way they interact with new companions.
We have listed the main features of blockchain in the insurance industry.
✅ Smart contracts They allow people to transfer any value without facilitators. Like traditional contracts, smart contracts establish rules by the two sides. In contrast to traditional contracts, smart contracts can track insurance payments and hold both sides accountable.
✅ Advanced automation As the insurance industry connects millions of insurers, healthcare providers, and clients, the sector will simply become bogged down in inefficiencies associated with wasted funds and time caused by billions of forms, human factors, and bad communication.
✅ Сybersecurity Blockchain helps to protect sensitive data. It is particularly attractive to a segment that is heavily reliant on data from the intersection of health, work, and private life. Blockchain registries are decentralized, so they can’t be damaged or manipulated by a single authority. Besides, all data is chronologically time-stamped to ensure that events are recorded.
✅ Client identity Brokers, insurers, reinsurers must comply with KYC (know your customer) requirements for all their counterparties. This includes collecting important customer data and verifying their identity, which is a time-consuming process. PwC and Z/Yen have created a blockchain-based prototype to accelerate this process. It keeps records of client documents and endorsement evidence from the issuing authority. Moreover, it enables the client to maintain control over the records.
✅ Claims management Blockchain can reduce costs and time spent on each customer, and provide more confidence. This allows insurers and brokers to work more efficiently. Moreover, it is possible to create a blockchain that will include all documents created during the claims process and be available to all underwriters. This would give insurers the ability to process claims without being actively involved, as they could track and review them at any time. The administration cost for the claims broker will also be reduced.
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Blockchain implementation has a wide list of benefits. Below we mentioned the most critical ones.
🔹 Trustworthiness The first advantagу is reliability. Its ability to have built-in consensus algorithms ensures provenance, verifiability, and immutability. This simplifies building smart contracts, which can bring tremendous advantages to the insurance sector.
🔹 Great automation Smart contracts simplify insurance. Since it stores the unchanged terms of the contract, a smart contract can facilitate and enforce the contract. The whole process of insurance claims can be simplified as the blockchain is executed by the terms of the smart contract – and this happens automatically.
🔹 Security Together with other technologies such as the Internet of Things (IoT) and artificial intelligence (AI), blockchain can collect a range of useful data. I.e., if an insured person wears a fitness watch and agrees to share data – such as heart rate, oxygen levels, and sleep time – you can offer them a lower premium. The data collected by the IoT is stored on the blockchain and then read by AI, helping your company make more informed decisions.
🔹 Fraud detection One of the main challenges insurance companies face is fake claims. Using blockchain will make it easier to verify the veracity of the statement. Insurance companies will be able to delve into historical data to identify past customer fraudulent activities and resolve such inconsistencies in advance.
🔹 Administrative costs minimization For sure, blockchain will help decrease costs for life insurance companies. There will be an automated verification of the customer’s identity, the validity of the contract, the registration of the claim, and data from a third party.
✔ Blockchain has a wide range of applications in insurance. It can be used for transactions ranging from signing contracts to processing large amounts of data input and resolving claims in one place, with all decisions recorded for future use, decision confirmation, and training. Blockchain smart contracts can provide risk management, contract enforcement, and even some degree of automatic claim resolution.
✔ The insurance blockchain can bring many benefits to the industry. The potential benefits mainly come from the generic features of blockchains such as immutability, blockchain security, and transparency (or privacy if that’s what is required). Insurers can use this in several ways:
We created a list of the companies using blockchain technology to provide you with the successful examples of implementing it in the work.
Blockchain implementation in the insurance industry involves various complexities. Thus, you should also pay attention to the next points.
☑ Prone to cyberattacks The global blockchain market is expected to be worth $20 billion in 2024. With so many new users, blockchain is becoming more and more susceptible to cyber attacks every day.
☑ Loss of data integrity The integrity of the data must take into account the validity of each transaction, which casts doubt on fraudulent insurance transactions. The blockchain must be fraudulent to ensure data integrity.
☑ Cost of operations As blockchain becomes more popular, it becomes more expensive for insurance companies to incorporate this new technology into their daily processes.
☑ Blockchain privacy In a cryptocurrency (like Bitcoin), the blockchain is publicly available, which means that every transaction can be traced back to the original block. This information can potentially be accessed by criminals seeking to use this information.
☑ Hiring a team of developers Unlike other types of coders, there are few blockchain developers. Partly because blockchain is a fairly new technology. But it’s also worth mentioning that blockchain is difficult to learn. Its complex nature makes blockchain a valuable skill. In this article, we discuss the hiring of a blockchain developer in detail.
Summing up, blockchain offers many benefits in insurance, and lots of companies in this area have already taken a step towards adopting new technology to take their business to the next level. If you don’t want to be left behind in just a couple of years, it’s worth joining the distributed ledger wave.
Contact us via email: andrew.gromenko@code-care.pro. We will discuss the possibilities of transforming your insurance company and creating advanced solutions.
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Questions you may still have
Blockchain technology is based on the principle of a distributed ledger, which eliminates the need for intermediaries.
Blockchain implementation gives lots of advantages. I.e., trustworthiness, security, automation, fraud detection, etc.
The core features are smart contracts, automation, cybersecurity.
Insurers can use blockchain in several ways. I.e., for medical insurance, for property insurance, for travel insurance, for title insurance, etc.
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