Being a long-standing concept, insurance has existed since the 1300s when explorers were trotting the globe. Since then, insurance has affected all aspects and assets in life, protecting everything from a home to a life. Throughout its existence, the industry has experienced little change as it still operates on systems developed in the 1970s and depends heavily on manual labor and data entry.
Fortunately, blockchain technology presents a valuable opportunity for the entire insurance industry, combatting its severe pain points. Within property and casualty (P&C) insurance, the largest category of insurance, the blockchain, and smart contracts simplify the underwriting and claims process through efficient automation and succinct data reserves. For health insurance, blockchain provides easier access to health services without the hassle of complicated personal data and paperwork. Blockchain also benefits reinsurance firms, the often unseen part of insurance. Looking towards the future, insurance ventures into the Internet of Things (IoT) and becoming more globalized with blockchain growing alongside.
Addressing Insurance’s Issues
Major issues with insurance are encountered throughout the industry, calling for new opportunities for speed, accuracy, and innovation. Especially in P&C insurance, filing claims involves an incredible amount of paperwork and communication which allow for significant room for errors and fraud on the insured and insurer side. Insurance companies must also manually review claims and conduct processing, leading to a more time spent and higher cost of operation. Throughout the whole procedure, personal and essential information is exchanged between the insured and insurer as well as reinsurers, creating an inefficient exchange of data for all.
The Typical Insurance Process
A preliminary step in issuing insurance, underwriting involves assessing risk and exposures of potential customers to determine coverage and premium costs. However, this essential step tends to be difficult and lengthy on both ends. On the insurer side, evaluating personal client information takes an immense amount of time and must be completed by hand. On the insured side, coverage details and costs often lack explanation and are disclosed in complex documents. In addition, customer onboarding is typically difficult and time-consuming, causing customers to become misinformed about their insurance plan.
With its automation, visibility, and immutability, blockchain offers a heightened level of security and speed for insurance companies and their clients. For risk assessment, blockchain supports clarity for current and previous insurance policies in addition to providing a communal interface for even trusted third parties such as notary services and public records to have secure access. For quoting, smart contracts can be created through blockchain technology for an understandable, constant record of terms and conditions. For customer onboarding, blockchain can be used as a messenger to send key information to new customers in a fast, seamless way based on digital cryptography. Overall, the added trust and transparency in underwriting will streamline the process and simplify it for consumers and insurers alike.
As the method to damage recovery, filing claims has always been a necessary but tedious process for both the insured and insurer. The claims procedure requires constant communication and attention to detail between the insured and insurer on the damage or loss sustained, coverage policies, deductibles, and overall costs. This creates room for delayed accident responses, inaccurate reporting, and slow proof of claim and settlement. Yet with blockchain, these problems are alleviated as the claims process overall is enhanced.
With claim registration, blockchain can automate pre-assessment of loss and contact to repair and service providers in an accident, reducing waiting time for consumers. Claim evaluation can also be automated in terms of loss coverage and liability for all parties. For claim closure, blockchain can be set up for automatic payments to the insured using smart contracts which provides immutability and transparency in the settlement. Ultimately, blockchain can build a more customer-oriented claims model that focuses on streamlining communication with clarity and ease.
Fraud Prevention and Risk Detection
Fraud affects almost all industries, racking up billions for large corporations. The insurance industry is no different. Insurance fraud costs property and casualty and health insurance $40 billion every year, leading to an average of $400–700 in increased premiums per family. With 5–10% of all claims being fraudulent, it is crucial that the industry as a whole focuses on fraud detection and prevention. Unfortunately, it is a traditionally sluggish, paperwork-based process which increases the potential for false claims and illegal broker sales.
Using blockchain, insurance companies can permanently record transactions and claims to protect data security. Blockchain can also eliminate double-booking, the act of submitting multiple claims on a single incident. Combined with the power of smart contracts and digital certificates, this implementation of such technology can accurately establish ownership and reduce premium increases with a more secure and immutable system. In addition, the decentralized blockchain repository has a verification ability to identify and authenticate trusted customers, policies, claims, and brokers.
Healthcare touches the lives of everyone. But, administrative work and health data have complicated the process of receiving health attention and services through insurance.
For example, administrative spending accounts for 15% of the health industry’s total spending. Major insurers operate on claims systems that are 30+ years old and work at a slow pace. The average health patient sees multiple doctors and specialists within a lifetime, making it difficult to transfer patient records and history among various providers. Strict privacy laws such as the Health Insurance Portability and Accountability Act or HIPAA also limits sharing material between organizations, further complicating access to patient information.
Blockchain has the power to alleviate these pain points within health insurance. For example, blockchain can create a more comprehensive and safe repository of health information, supporting interoperability among partner hospitals and health providers. Such data sharing is not a violation of HIPAA since data on the blockchain can only be shared with authorized users such as physicians, insurers, and clients through electronic restrictions and signatures.
With regards to administrative work, blockchain technology can manage millions of transactions and profiles securely without fear of breach. For back-office operations like underwriting and pricing, blockchain can support faster processing according to certain business conditions for speedy payment and resolution.
Unseen by consumers, reinsurance is insurance for the insurance companies. Reinsurance firms absorb a portion of the financial risk assumed by P&C insurers globally. Due to its large scope, reinsurance experiences lag similar to those of the insured and needs a more consistent system of exchange with primary insurance firms.
Reinsurers can allocate capital for claims immediately with blockchain, resulting in a streamlined processing and settlement without the need for interference by primary insurers. Blockchain also arranges more transparency with reinsurance contracts and associated risk exposures on the primary insurer end, offering clarity in the relationship.
New Frontiers: IoT and Global
In recent years, the Internet of Things or IoT has gained traction with its innovative, connected devices that make everyday life easier. Aligning itself with this goal, insurance has implemented new usage-based insurance (UBI) devices and smart assets within homes and automobiles to condense and simplify the claims process. Such smart devices detect damages, contact repair providers, and send claims accurately and immediately to an insurance provider. The increase of IoT products improves communication when combined with blockchain, bringing incredible credibility to claims.
Many global insurers tend to develop alliances and partnerships, forging payment models together. This need for connectivity and consistency has made blockchain extremely useful. Blockchain provides automatic risk data analysis, building market insight, streamlining transactions, and attracting financing risk. Asset management costs are also reduced since blockchain decreases hedging fees, protecting global insurers from currency fluctuation.
For a conclusion, in an industry where data is essential, blockchain provides a viable, efficient solution to insurance’s major pain points. Despite the benefits of blockchain technology, widespread implementation and usage by large insurance firms has yet to come but will enhance customer experience, data security, and insurer processing immensely.