Some enthusiasts have touted blockchain technology as the greatest symbol of the fourth industrial revolution. They consider it to be the next big disruptor of many industries including insurance. This could be right. Though in its infancy, blockchain technology has the potential to do so much in insurance. It can increase data security, streamline paperwork and cut costs associated with the lengthy claims’ process. Here is how blockchain technology could work in the insurance industry.
Lack of trust continues to undermine the financial services industry. It is this lack of trust coupled with inefficiency and the resulting high costs of insurance that has made many to remain uninsured. Consider California in the US as an example with a high risk of loss resulting from earthquakes, yet only 17% of households have taken out earthquake insurance. The transparency that comes with blockchain technology can build the trust that the industry needs.
If you try to change your insurer or healthcare provider, you will discover how inefficient the data entry process is. In addition, there is always the fear of losing control over your personal data. With blockchain technology, the process would be more efficient. You would also be able to control your own personal data with verification registered on the blockchain.
Smart Contract Based Claims processing
Blockchain technology can help both the insured and the insurer. The insurer is keen to ensure that the insurance contract does not leave a room that could be exploited by fraudulent insured persons. As a consequence, the contract becomes long and confusing, to the disappointment of the insured. Blockchain technology can help in the transparent and responsive management of the contract. A contract would first be recorded and verified on the blockchain which would then ensure that only valid claims are paid. Once the specified criteria are met, the blockchain would trigger automatic payment of the claims without human intervention, therefore, significantly increasing the speed of resolving claims.
Detecting and Preventing Fraud
Blockchain technology can help in the detection and prevention of fraud. In the U.S. alone, FBI estimates that between 5 and 10 percent of all claims are fraudulent. This causes insurers to lose approximately $40 billion annually. The decentralized ledger of a blockchain contains a historical record which can be used in the independent verification of customers, policies, and transactions. To get the full benefits, participants would have to cooperate in the sharing of information to prove policies and verify policy reports among other things.
The insurance industry needs to seriously consider the potential of blockchain technology as it holds a lot for the industry’s future.