Here at Inmediate, we know that the business of insurance is enormously complex: The process of evaluating and managing a variety of risks that individuals and organizations face every day inevitably involves coordination of the multiple parties’ efforts and reconciliation of extensive records. Both aspects make the insurance sector an appealing ground for blockchain-based optimization — and indeed, distributed ledger technology is a prominent feature of a rising tide of technological innovations, collectively known as insurtech, that seek to bring new efficiencies into the industry.
Research firm MarketsandMarkets in 2018 projected that the value of blockchain components in the insurance market will see a compound annual growth rate of 84.9%, reaching $1.4 billion by the end of 2023. Also, a 2019 insurtech-specific report by KPMG noted that blockchain was not a “buzzword” or “future innovation” for the insurance space but that it is already operational in flight delay and lost baggage claims systems and is expected to improve other risk domains such as shipping and, somewhat more remotely, health care.
In addition, a 2018 World Insurtech Report named blockchain as one of the technologies set to disrupt the insurance business, alongside artificial intelligence (AI), drones, wearables, and robotic process automation. The document cited enhanced information exchange, increased trust and efficiency of smart contracts as major improvements that the technology offers.
Hartford’s Insuretech Trends report observed that insurance companies already utilize blockchain technology to “streamline processes, provide transparency, and enhance security,” as well as for data management and protection, reducing administrative costs and boosting consumer trust and loyalty. All in all, there seems to be a host of actual and potential improvements associated with blockchain implementation in the insurance industry. Here is a look at some of the major areas of optimization.
Verifying the authenticity of claims is a huge part of an insurance company’s workflow. Legacy systems that rely on standalone databases and paper records are slow and expensive: Manual approval of a claim may drag for days and even weeks, and the process still leaves room for error or abuse. Making these procedures fully automated — through a combination of a tamper-proof ledger and self-executing smart contracts — could dramatically lower insurers’ operational costs, resulting in lower premiums for their customers.
Insurance fraud, facilitated by the lack of interoperability between the industry participants’ databases and general complexity of paperwork that accompanies claim settlement, is very common in developed countries. Aggregate losses from this type of offense are estimated to be very high every year. And while it is insurance companies that sustain direct losses, the burden ultimately gets equally shared between all the households that use their services, in the form of increased premiums.
According to an analysis, the fundamental improvement that blockchain technology could bring to the area of combating fraud lies in the potential consolidation of insurers’ databases. When all claims are stored on a distributed ledger, wrongdoers are left with a very slim chance to, for example, file multiple claims on a single insured event with different companies. A unified transparent database of claims would also enable interested parties to track claimants’ suspicious behavior and identify patterns that might suggest abuse.
One particular domain in which the arrival of operational blockchain solutions will change the game entirely is healthcare insurance. Right now, efficiently managing and coordinating patient data between doctors and medical institutions while preserving patients’ confidentiality is a major stumbling block for the sector.
One of blockchain’s great promises is its potential to enable actors to exchange data securely while precisely customizing who are allowed access to which information. Once such a comprehensive distributed medical database is up and running, patients will be empowered to decide which parts of their medical history to share with a certain doctor or clinic. In turn, medical professionals and administrators will see a major efficiency boost from having instant access to their customers’ blockchain-verified health records.
Health records also play a significant part in determining the premiums that holders of life insurance policies have to pay. Once all patients have their medical histories moved onto a secure medical database running on a blockchain, it will become possible for life insurers to calculate premiums and issue policies automatically.
Finding a beneficiary upon the insured’s death is sometimes problematic due to both family dynamics and flaws in record-keeping. The practical effect is that many of unclaimed life insurance money is sitting in carriers’ bank accounts. With smart contracts triggered automatically in the event of a policyholder’s death, this may become much less of an issue — given that the order of potential beneficiaries is spelled out clearly in the policy.
Insurers also need their risks hedged. If a major disaster occurs, a company may get flooded with claims that will drain its reserves too quickly and threaten its solvency. To guard against dire scenarios like this one, insurers purchase coverage from reinsurers or participate in consortium-style intra-industry agreements.
Currently, underwriting reinsurance and negotiating policy conditions is an inefficient and lengthy process. Insurance firms typically rely on several reinsurers at once, creating the need for multiparty data exchange — fertile soil for blockchain to step in and streamline the complex web of interactions.
With all the potential efficiencies blockchain is set to bring to the table, many of the most impressive insurance-related use cases are still aspirational. The bulk of the technology’s disruptive promise resides in the domain of coordination enhancement. In order to fully capitalize on this potential, the industry will have to rally behind the idea of aligning standards of information exchange, shared data pools, and broad cooperation.
The regulation for insurance also remains a potential impediment for blockchain’s explosive expansion. Insurance companies are subject to heightened regulatory scrutiny and so is distributed ledger technology. Bringing both together will require cutting through a lot of red tapes, as well as the creation of new rules to guide the symbiosis.