Blockchain technology has the potential to revolutionize the insurance industry, particularly in the area of claims management. By leveraging blockchain-based solutions, insurers can streamline the claims process, reduce the risk of fraud, and improve customer satisfaction. This article will highlight some of the top use cases, challenges and the way forward for blockchain-based solutions in the insurance industry.
Top use cases of Blockchain in insurance.
1. Automate Underwriting:
Efficient data analysis is a crucial aspect of the underwriting process. It determines a customer’s insurance coverage. Blockchain technology can aid this process by incorporating external data to reduce risk and offer semi-automated pricing. This automates and streamlines the underwriting process, and reduces operational costs. Additionally, blockchains enhance transparency and trust in underwriting by allowing for shared visibility in complex transactional deals.
The data warehousing and analytical tools that blockchain technology provides have made the underwriting process faster, more efficient, and more secure. It also promotes transparency in the process, strengthening the relationship between insurance companies and their customers.
2. Claims Processing:
The Claims Operation process involves the identification, assessment, and resolution of claims. By implementing Blockchain technology, insurance claims can be refined and streamlined through the creation of a distributed ledger, which records every transaction made on it. This ledger allows tracking of the progress of claims processing from the point of inception or First Notice of Loss (FNOL) until they are settled in court or otherwise resolved by the insurance company. This makes it easier for all parties involved to monitor their progress through each stage of the process.
Insurance companies need to perform filing, validation, and approval of claims. Blockchain technology in the insurance industry provides a secure identity verification process and uses smart contracts for the automatic execution of procedures. This significantly improves the speed of claims processing.
Payments are automatically made to the appropriate party when an event triggers a smart contract. In the past, claim approval would take up to a week or even a month, as it involved various web portal updates, paper attestations, and photocopying. However, smart contracts now allow for immediate claim approval.
3. KYC/AML Processes and Anti-Fraud Solutions:
In the insurance industry, it’s crucial to verify the identity of customers and the source of their funds to comply with Know-your-customer/Anti-money Laundering (KYC/AML) regulations. Compliance-related processes are of utmost importance as there is a constant threat of hackers and criminals trying to steal money or personal information.
Blockchain technology also automates KYC/AML processes, such as verifying bank accounts. Blockchain helps validate records by multiple parties simultaneously, saving both time and money. The distributed nature of blockchain allows for the secure sharing of information across an organization and to relevant third parties. Moreover, if blockchain secures customer identities, insurers can efficiently verify their eligibility without the need to access multiple sources.
In addition, blockchain can be used as a cross-industry, distributed record for external and customer data. Blockchain also validates the authenticity, ownership, and provenance of goods and documents, checks for police theft reports and claims history, confirms a person’s verified identity, and detects patterns of fraudulent behavior related to a specific identity. It can demonstrate the date and time of policy issuance or purchase of a product/asset and confirm subsequent ownership and position changes.
4. Real-time claims and payment automation:
By utilizing smart contract technology on the blockchain, insurance companies can approve customer claim requests instantly, eliminating the need for time-consuming paperwork and identity verification checks. Smart contracts can also be linked to significant events, triggering automatic claim settlements. Parametric insurance, which is event-based and involves minimal human intervention, can benefit from blockchain technology. This type of insurance can now become a standard in the industry, eliminating the need for human claim verification. As a result, customers can enjoy a smoother claims process, while insurance companies can reduce losses.
Reinsurance involves the transfer of risks between insurance companies, which helps mitigate risks, increase capacity, and distribute risks across multiple insurers. By utilizing Blockchain technology, it’s possible to simplify the reinsurance process and allow users to submit claims in a similar way to traditional insurance policies. However, the difference lies in the fact that the claims are recorded on an immutable ledger on the Blockchain, making it impossible to modify them once they are recorded.
6. Peer-to-Peer Insurance:
Peer-to-peer (P2P) insurance is a unique insurance model where individuals can directly purchase insurance coverage from each other. This model takes care of various types of insurance, including auto, life, health, homeowner’s insurance, and more. Some companies are now leveraging Blockchain technology to improve their P2P insurance services. By utilizing Blockchain, both parties involved in the transaction can benefit from transparency and accountability throughout the entire process.
P2P insurance using Blockchain can make it easier for customers to compare quotes from different providers without worrying about hidden fees or surprises when purchasing or renewing policies through an agent or broker. Blockchain securely records transactions, which helps prevent fraudulent claims against either party. This is possible because all records are stored simultaneously on multiple computers worldwide.
It is evident that Blockchain technology offers new ways to ameliorate the inefficiencies in insurance assiduity. It can help insurers by creating a more secure terrain, significant effective earnings, reducing costs, brisk payouts, fraud mitigation, and boosting trust. Blockchain in the insurance assiduity also provides real-time data that can be used in various ways similar as risk scoring, claims settlement, and much more.
Examples of Blockchain in the Insurance Industry
Blockchain has immense potential for the insurance landscape. To reiterate, here are some numbers!
According to Gartner, experts estimate blockchain to be heavily adopted by 2023 and lead to $3.1 trillion in new business value by 2030. Now, the estimates are worth investing your time and efforts in.
The insurance landscape is already bustling with incredible startups and platforms bringing immense value using blockchain in insurance. Let’s look at some compelling examples.
Insurtech company, Ryskex helps provide insurers with an easier way to assess and handle risks accurately through its blockchain-based platform.
Fidentiax, a blockchain market for trading insurance policies, launched its digital ledger product (ISLEY) for insurance policies in 2018. The product supports consumers as insurance buddies.
It allows users to store, view, and receive alerts for their insurance portfolios. What’s more?
The portfolios can be shared with designated loved ones through the ledger to support beneficiary payouts after death.
Lemonade combines AI and DLT to offer insurance to renters and homeowners. The Lemonade protocol is interesting. It requires a fixed fee from each participant every month, and it allocates the rest toward future claims.
It attempts to remove bias from submitting and paying claims by grouping customers by the charity they choose upon sign-up. Lemonade is grounded on AI-based algorithms to establish claim legitimacy.
Black is a digital insurance company on the blockchain, which empowers MGA-s and brokers, opening the centralized insurance market for crowdsourcing.
B3i incorporated in 2018, helps the insurance market with excellent solutions for end consumers through faster access to insurance and reduced administrative costs.
Etherisc helps with outstanding blockchain solutions, making insurance more accessible. How? With its decentralized insurance protocol, it can collectively build insurance products. Their insurance policy for flight delays is the most popular product, it includes:
• Hurricane protection
• Crypto wallet insurance
• Collateral protection for crypto-backed loans
Moreover, they have also prototyped crop insurance and social insurance.
Blockchain is all set to alter the insurance space. The industry is yet to see more mind-blowing Blockchain implementation. So, you are in the right time and space to look out for trends and focus on riding the waves of change.
Limitations of Using Blockchain
The adoption of technology isn’t without challenges. Here are some snags of using Blockchain.
1. Nascent Technology
As the technology is still evolving, resolving issues such as transaction speed, data limits, and verification processes will be critical in making Blockchain widely applicable.
2. Uncertain Regulatory Status
Insurance regulations are uncertain, and dynamic, and require to be updated frequently. As the landscape is unsettled, blockchain faces a hurdle in extensive adoption by insurance carriers.
3. Security and Privacy
While robust solutions exist, including private or permissioned Blockchain and strong encryption, many insurers are still concerned about cybersecurity.
4. Integration Concerns
Blockchain applications offer robust solutions that may require significant changes or overhauls of existing systems. So, companies need to plan the integration seamlessly.
5. Operation Time
The new technology is still unexplored, and some consequences are still to be identified. The customers’ demands are high, whereas, on the other hand, the software keeps changing at a fast rate. Because of the inequality in the rate of changes between software and hardware, blockchain can affect and impact its performance.
6. Cultural Adoption
Blockchain requires a new way of thinking. Ultimately, a complete shift to a decentralized network requires the buy-in of its users and operators.
Blockchain offers massive savings in transaction costs and time. However, the initial capital costs are high, which acts as a deterrent.
As blockchain technology is evolving, the competition grabbing for opportunities is also increasing. There are many rumors around the marketing, making it difficult for customers to trust. Plus, it also increases the cost of adoption.
9. Exchange of Information
With rapidly changing technology, it is logical software and hardware systems also change. As the rate of change is fast, it is a challenge that there is no fixed standardized system for exchanging information.
10. Rules and Regulations
With blockchain, there is a need to overthrow the old system of rules. It is pertinent to have rules and regulations where everyone reaches a consensus with all networks buying in.
Every challenge is a beautiful opportunity. The question is, are you up to using these challenges to your advantage? The benefits surpass all hurdles. All it takes is learning, adapting, and creating winning solutions.
Today, blockchain in insurance can be a game-changer. There are compelling use cases for blockchain, and it can transform the way physical assets are managed, tracked, and insured digitally.
With incredible benefits, such as enhanced cost efficiency, reduced risk, and more, it’s time you leverage blockchain. Blockchain is here to stay on the insurance roadmap.
Although it is still nascent, given the readiness of the market to embrace newer models and protocols, blockchain is here to stay!