Blockchain technology is all set for exploration by insurers. The traditional insurance industry depends on paper contracts. Furthermore, people need to call via phone to learn about new policies. Also, the chances of errors are high, and the manually collected data can be lost or misinterpreted. And here comes, Blockchain in insurance comes into the picture where you can transform the traditional insurance industry.
Blockchain is a trendy technology buzzword, a digital ledger carrying transactional records termed a block in different databases called the chain in a linked network via nodes.
In this article, you will get acquainted with how an intelligent insurer can use Blockchain technology to change their insurance business. Let’s begin:
Benefits of Blockchain in the Insurance Industry
Insurance blockchain offers many perks, such as cost-effective, transparent, trustworthy, and long-lasting solutions. But that’s not all. Following are some more benefits of implementing blockchain technology in the insurance industry. Let’s take a glance at it.
1. Eases Claims Processing
Blockchain helps automatic claims by verifying documents between reinsurers and companies. Moreover, it can also help to automate transactions between two or more parties for claims. This can help insurance companies by reducing administrative expenses.
2. Improve Efficiency
Blockchain can help with efficiency gains. It enables quick payments and transparency while securely verifying data sharing to different parties. As we know, most insurance procedures are manual, and blockchain technology can assist with less paperwork of insurance contracts for a good customer experience.
3. Builds Trust
When transactions of insurance contracts are secure, verifiable, and authentic, it offers a sense of trust among the transacting parties. Luckily, you can avail all these benefits from cryptography in the Blockchain.
4. Supports Smart Contracts
Smart contracts are one of the key ways that blockchain technology will help the insurance sector. Over 1,700 of the 3,000 counties in the US have an e-recording platform. Many banks are implementing technologies that turn their paper documents into e-docs. Smart contracts are becoming more prevalent with the widespread acceptance of this technology.
5. Reduce Administrative Cost
Blockchain technology helps users with automated verification of policyholder identity, contract validity checks, auditable claim registration, and data from third parties. Blockchain technology can reduce costs by 15% to 25%.
How can Blockchain Impact the Insurance Industry?
It is ideal to say that Blockchain in insurance help to reduce the cost of administration, claims, product development, and underwriting. Initial areas taken for crypto insurance companies include applying Blockchain to create automation in paying returns. In addition, blockchain creates smart contracts between insurers and companies, offering transparency and reliability.
Let’s check out in detail how the insurance industry can be transformed by blockchain.
1. Impact on Registration of Warranties and Expensive Items
Blockchain offers reliable product details for the advantage of stakeholders. Further, it provides industry-wide efforts to reduce fraudulent claims. Also, it can track item claims and ownership in real-time.
2. Impact on AML/KYC Methods
Blockchain secures customer information that can be repositories shared among companies. Also, using Blockchain reduces the risk of error and duplicacy of KYC work. Furthermore, it aids in enhancing the visibility of clients’ activities across companies and offering better adherence.
3. Impact on Index-Based Insurance
Index-based insurance or Parametric insurance provides pre-listed payments as per trigger events. Blockchain can help in automating entire index-based insurance parts. Further, blockchain technology can clear and manage all transactions, excluding manual intervention. It also eases crisis bonds and related insurance claims, flight cancellation, delay, food crop insurance, and many more.
4. Impact On Claim Handling
Using Blockchain in insurance, you can create a solid record of claims. It further grants insurance owners you access to their data freely. Also, it has data silos (vaults) to lower claims fraud.
5. Impact On Insurance Distribution
Blockchain lets you make transactions for claims quickly. Further, Blockchain aligns the actions of different parties at fair costs. It also gives users direct access to multiple carriers and lets them handle other policies on a single platform.
6. Impact on Data Collection and Storage
In the Blockchain, data is stored in blocks; once it is stored, it cannot be changed. Blockchain can collect data with the help of other technologies like the Internet of Things (IoT) and Artificial Intelligence (AI). For instance, a company may offer a low premium for health insurance based on factors like oxygen saturation, sleep duration, etc. IoT devices gather data, which is then kept on a blockchain. Finally, the business will use AI to analyze the data stored on the Blockchain and determine the insurance premium.
Best Use-Cases of Blockchain Applications in the Insurance Industry
Blockchain technology offers clear and detailed information to innovative insurers and customers through a valid database to make the right decision. Let’s look at real-life blockchain use cases in the insurance industry to leverage technology benefits.
1. Fraud Detection
Despite complete digitalization in many developed economies like the US, a high level of insurance fraud takes place. For instance, there is a loss of $40+ Billion a year through fraud across non-health insurance.
Luckily, Blockchain in insurance ensures every transaction made on the ledger is permanent and unchangeable. This creates a hurdle for any fraudster to interrupt Blockchain data. This further assists smart insurers in detecting fraud and preventing it on the spot.
As per PwC stats, reinsurance companies can save up to $5 to $10 Billion using Blockchain. Reinsurance or wholesale insurance means insurance to many insurers. Today, reinsurance industries mainly focus on increasing their overall efficiencies to enjoy higher profits in the market. Blockchain can make the insurance process easy for multiple users (insurers) by eliminating the need for various data filling and task duplication.
Another big win of blockchain smart contracts for insurance and insurance is “full transparency.” When all risks underlie a blockchain, these can easily be collected onto a reinsurance blockchain. This further ensures all data, transitions, and documents flow into their insurance.
3. On-Demand Insurance
Blockchain includes records (ledger entries) that can make processing on-demand insurance easy. Flexible insurance, where insurers can enter or exit their insurance policies in a single click, is called ‘on-demand insurance.’
Blockchain, a digital records technology, can cut all the extra requirements of on-demand insurance such as documents, buyer records, risk, costing, claims, and many more.
4. Ownership Proof and Asset Tracking
Property ownership records for vehicles or homes can be fed into the DLT (distributed ledger technology) system. Further, insurance companies have to build ownership of insured assets and then can track the transfer of their ownerships.
Blockchain allows innovative insurers to track the transactions of any valuable online assets via ‘tokenization,’ the process of tracking/transferring them.
5. Peer-To-Peer Insurance
Peer-to-peer insurance assets via blockchain technology have emerged in recent years. Using the P2P insurance model, you get a digital wallet where users put their amount in an escrow-kind account. Then, they use this amount for claims transactions rather than an old insurance payout process.
Usually, groups of people not individually eligible for particular insurance coverage may process the decentralized trust of blockchain to ensure the group. They do so by sharing the risk distributed.
6. Blockchain in Health & Life Insurance
Health & life insurers are one of the many player groups that are busy determining how blockchain technology can be used for the betterment of this field. The main questions include how blockchain technology can manage risk, reduce cost and improve user experience.
In the healthcare sector, Blockchain assists researchers in discovering new codes. It achieves this by encouraging safe transfers of patient medical details, handling the drug supply chain, and clinical trials for better healthcare results.
7. Micro-insurance in Emerging Markets
Compared to an all-inclusive insurance policy, microinsurance protects against specific perils for recurring premium payments significantly less than regular insurance. However, microinsurance schemes occasionally may not appear financially viable because of the labor-intensive administrative procedures and high fees for small payments.
But with Blockchain, microinsurance initiatives in emerging markets can automate underwriting and claims handling based on predefined rules and makes it simple to facilitate payouts to insured individuals.
What are Smart Contracts in Insurance?
Smart contracts allow blockchain users to transfer valuable items transparently without middleman interference. The differences between physical and smart contracts for insurance are as follows:
- Physical contracts take 1 to 3 days, while smart contracts take a few minutes.
- There’s a need for a middle man or lawyer in the physical contract. But, at the same time, a lawyer’s presence is not necessary for intelligent contracts.
- Physical contracts are expensive, whereas intelligent contracts are pretty affordable.
In other words, smart contracts are programs recorded on a blockchain that works when pre-set terms and conditions are. Moreover, smart contracts are fed into the Blockchain to ensure they are secure, traceable, and transparent.
The insurance industry’s future is expected to reach USD 1,393.8 Million by the end of 2023. Blockchain is a better technology for the insurance sector as it offers transparent, clear, and secure transactions. Therefore, using Blockchain in insurance will bring cost savings and faster auditable and more accurate payouts.