Insurance Transformation: The Possibilities Of Innovating The Industry Thru Blockchain
For years, the traditional insurance business model has proven to be a surprisingly resilient one. However, traditional insurance is beginning to feel the digital effect as emerging technologies change the way consumers interact with businesses and how products and services are delivered. There’s a general perception that the global insurance industry lags behind other financial service sectors, leaving much to be desired in terms of cost-savings and efficiency. There are also major issues concerning fraud, human error, and cyber-attacks.
Enter blockchain technology: a distributed and decentralized public ledger that is the record-keeping technology behind bitcoin. Blockchain transactions are free to use and have the potential to completely change the way insurance is contracted. Blockchain optimizes efficiency, security, and transparency for the entire insurance industry, using public ledgers and fortified cybersecurity protocol. Many sectors already utilize this technology, including (but not limited to) companies providing and trading renters, homeowners, unemployment and travel insurance.
How does blockchain technology work?
Blocks on the blockchain are comprised of digital pieces of information that exist in three parts. The first is stored information about transactions like date, time and dollar amount of purchase. The second is stored information about who is participating in those transactions. The third is stored information that distinguishes one block from all other blocks.
For a block to be added to the blockchain, four things must happen:
- A transaction must occur
- The transaction must be verified
- The transaction must be stored in a block
- That block must be given a hash or a unique code
There are many advantages to using blockchain technology including improved accuracy by removing human involvement, greater user privacy and security, lower processing fees, and decentralization that makes it harder to tamper with the technology.
Blockchain is currently used by a variety of industries for many different reasons. Some real-world uses include connecting musical artists and licensing agreements (Spotify), keeping track of status and condition of every product in a supply chain via a shared record of ownership and location (IBM Blockchain), and even translating key insurance industry processes into blockchain-ready procedures (Accenture). However, the opportunities for blockchain are truly endless.
Blockchain technology meets the insurance industry
The insurance industry has been around for centuries, but unfortunately, its processes are still very much stuck in the past. Many policies are still processed on paper contracts, consumers still call by phone to purchase new policies, the list goes on.
All things that lead to risk-associated steps in which information can be lost, tampered with, and misinterpreted.
And while blockchain is a hopeful solution, it won’t come without its obstacles. Insurance companies must overcome regulatory and legal hurdles before fully embracing blockchain technology. Several blockchain features could be inconsistent with current insurance laws. For example, personal customer data and their policy information residing on the blockchain must comply with existing privacy and data protection regulations. Also, decentralization strengthens information sharing and reduces the advantages that information asymmetry provides. This provides new challenges for management in pricing, product development, claims services and more.
Insurance applications for blockchain technology
Property & casualty insurance
By using shared ledgers and smart contracts (software that checks for certain transactions in the network and automatically executes actions based on pre-specified conditions being met) to issue insurance policies, the claims and payment processes can be automated to create more efficiency and accuracy. Smart contracts can turn paper contracts into programmable code that helps automate claims processing.
The health insurance industry is filled with inefficiencies in its processes, like duplicated medical records, manual claims processes, and inaccurate record keeping. There’s much to be improved in terms of efficiency and accuracy. Because of this, the interoperability of systems and devices is crucial to ensuring that medical professionals provide sufficient care to patients, but successfully achieving interoperability within a medical system isn’t easy.
With blockchain, medical records can be cryptographically secured and shared between health providers, promoting interoperability and increased security within the health insurance ecosystem. Patient medical records can be stored safely and return control of medical data to patients, allowing the industry to save money and increase patient satisfaction.
Fraud detection & risk prevention
The outdated nature of the insurance industry’s processes leaves room for error and potential fraud. To combat this, insurance companies could store claims information on a ledger that would help them communicate and identify suspicious behavior.
The impact of blockchain technology
The insurance industry is notoriously slow to embrace new, more efficient processes. Blockchain can introduce enormous benefits to both companies and their customers, but there are certain limitations.
- Enhances efficiency — Because so many processes are manual and time-consuming, blockchain can streamline paperwork and reconciliation for insurance contracts.
- Increases trust — Cryptography in blockchain ensures that transactions are secure, authenticated and verifiable, ensuring customer privacy.
- Claims processing — Blockchain enables real-time data collection and analysis, which could make significantly speed up claims processing and payouts.
- Smart contracts — These programmable contracts contain logic that is automatically executed when predefined conditions are met.
Moving towards a blockchain-powered insurance industry
While blockchain shows promise in improving the insurance industry from every angle, the technology is still in its infancy. There is so much unknown about the true power of this technology. However, some start-up companies like us here at Inmediate — that are leading the way with blockchain, exploring the benefits of how this tech could improve business processes and customer satisfaction in the insurance industry.
What’s next for the future of insurance?
While blockchain can improve the industry in accuracy, efficiency, privacy and more, it’s incredibly important to understand that every single insurance company that embraces blockchain must agree to operate under ethical standards. Standards and processes must be aligned for blockchain to provide insurers with better tools for collaborating, sharing data, and making insurance processes less of a headache for customers.
Because the industry has high privacy and security concerns, blockchain must be developed further to meet the standards of insurance companies before it’s feasible. Also, insurance companies must provide clear regulations frameworks to safely utilize blockchain technology. Once these needs are met, blockchain can transform the insurance industry for companies and their customers.