Inmediate: Harnessing Blockchain Technology To Provide A Future Solution For The Insurance Market
As we have emphasized in our previous articles, we all know that blockchain can be combined with other technologies, notably smart contracts, to enable insurers to automate processes, create a platform and develop innovative products that otherwise aren’t possible.
The blockchain is a distributed database system in which transactions and records can be signed, exchanged and verified without the control of a central party. This secure, open means of conducting business transactions creates a level of transparency, security, and trust not previously possible. This technology is poised to revolutionize operations across a multitude of sectors, enabling additional stakeholders — such as brokers, vendors, reinsurers and ecosystem partners — to interact with each other. The result is a more connected ecosystem that ensures confidence in the security and accuracy of the data.
Unlike a traditional centralized computer database system, blockchain is decentralized and its records are distributed and maintained on many different computers at once. The records are called a “distributed ledger” and users have controlled access to one shared copy of the ledger.
As information is added, each new “block” of information is “chained” to the previous one in a permanent, unbreakable sequence using advanced cryptography. Before new blocks can be added to the ledger, they must be confirmed by different computers in the system, and unique keys are required to access individual blocks. If someone tries to access a block of information without a proper key, the system rejects the attempt and leaves evidence of tampering.
The terms “blockchain” and “distributed ledger technology” (DLT) are sometimes used interchangeably, but they aren’t the same thing. That is, blockchain is a type of distributed ledger, but not every distributed ledger is a blockchain. Similarly, while blockchain enables cryptocurrency, it is much more than cryptocurrency.
How can blockchain benefit the insurance industry?
Different from banking and capital markets, which have established exchanges that are particularly vulnerable to disruption by blockchain, insurance doesn’t have a natural exchange to which the technology can be applied — but that doesn’t mean it doesn’t promise to reshape the industry’s processes.
However, there are some obvious challenges. Insurers must develop and integrate the technology and connect all the relevant stakeholders that are involved in insurance transactions. Another factor is volume: in order to make a blockchain investment worthwhile, insurers must find a use-case with high-volume transactions.
Within insurance, the claims and finance functions are high-value areas where blockchain could be beneficial, especially when you look at processes that need ongoing reconciliation with external parties. Consider how often Company A has a claim against Company B resulting in the exchange of money, typically in the form of a paper check or an electronic transaction. That could be completely automated using blockchain.
Presently, many insurers are applying a smart contract alongside the blockchain, also known as smart insurance, which is triggered when well-defined terms and conditions are met. By setting up an insurance contract that pays out under these circumstances, an insurer can process transactions with no human intervention and greatly enhanced customer service.
In other words, blockchain can help deliver on the digital opportunities that insurers must get right. These opportunities aren’t glamorous but they’re important: Blockchain can help insurers deliver on some brilliant basics. For example:
- Streamlined subrogation
- A more transparent claims process
- Using shared loss histories to obtain data-driven insights on prospective customers for more sophisticated pricing
- Supporting more efficient payments between insurers and third parties, especially during the claims process
Blockchain can also power new business models based on personalized, real-time risk assessment, rather than historical data and averaged pricing. It could, for example, enable P&C insurers to build more sophisticated usage-based insurance models in partnerships with auto manufacturers or makers of smart home devices. Other emerging customer-centric business models and products include:
- Peer-to-peer insurance
- Smart adjusting policies
- Smart-device insurance add-on
In conclusion, what we are trying to have now especially here with us at Inmediate is collaboration and partnerships to enable the use of our new ecosystem or platform that we are currently developing, since this is what we think will be the key to leveraging new technologies for the greatest benefit and a solution for the current issues of the insurance sector. Using blockchain, it has the potential to lift and carry the entire insurance industry to a new level. But each organization will have to decide for itself what role it should — and can — play in this new network of possibilities.
Blockchain can enable insurers to transform their business processes to unlock trapped value, reduce duplicative efforts and process inefficiencies, mitigate fraud and loss, and much more.
And that’s just the beginning: The promise and implications of blockchain are so profound that the technology could revolutionize business practices as we know them. Insurers would be wise to embrace the technology today — or risk falling behind the curve in the near future.