How to Improve the Insurance Industry with Blockchain
With its ability to speed up processes while also keeping costs low, blockchain can revolutionize the insurance industry, with particular benefits for early adopters. There are now more customers than ever, with increasingly diverse needs which cannot be met with the current systems being employed by insurance companies. By migrating to blockchain platforms, the insurance industry will not only be able to lower operational costs, but also make services more affordable for customers.
Financial consulting firm Deloitte estimates that more than half of Dutch insurance companies now have a blockchain budget. This follows in the footsteps of other organizations investing in the technology. BNP Paribas, for example, invested €8 million in Stratumn – a startup that protects critical process data.
As for the insurance sector, blockchain can be applied in two significant ways:
- Internal applications – these are company-specific applications, such as claims processing, filing and customer relations.
- Industry use cases – these are applications that affect multiple companies and outside parties, such as legislative features, KYC documents, and industry data.
The more transformative use of blockchain for the industry is the latter, which seeks to create a joint ledger that will help all insurance providers benefit from the information gathered by other companies to provide more efficient solutions for customers. It will create a more reliable system that will process claims faster and better, thus being able to serve more customers.
How Blockchain can improve in the Insurance Industry
Manage Contract Lifecycles
Processing of insurance contracts has always been a lengthy, costly and risky endeavor for insurance companies. Leveraging blockchain technology, however, will promote efficient sharing of contracts between the different players involved such as the underwriters, brokers and claim agents. The processes would also be made available to regulators instantaneously, making it easier for them to carry out their due diligence. The added security level of blockchain will also ensure that there are no data breaches and personal information never ends up in the wrong hands.
Launch Smart Contracts
Blockchain provides the opportunity for smart contracts, which run on an interconnected web devoid of human intervention. By 2020, there will be over 30 billion connected devices. This presents an excellent opportunity for insurance companies to plug into the network and be ahead of claims. A fire or an accident, for example, involving connected devices could instantly trigger the insurance company, which would allow it to begin processing the claim even before it is made.
Improve Proof of Insurance Processes
Proof of insurance is a contentious issue that is prone to fraud and client frustration, due in part to the fact that most of the forms are paper-based. Blockchain-based proof of insurance such as RiskBlock, provide immediate and irrefutable verification that will reduce fraud and promote transparency, while also keeping costs low.
Simplifying Property Insurance
Given the vital importance of property insurance, there is the need to ensure all contracts are properly documented and easily accessible. Allianz Insurance started a blockchain project o tackle this particular problem. It is an information storage system that updates automatically and ensures the payments are made on time and claims are addressed speedily. The process is transparent, easy to audit and quick to satisfy customers.
Making Life Insurance ‘Smart’
With the rigidity and complexity involved with life insurance, a quicker and easier model is needed. Blockchain reduces the documentation required, as it can access KYC information from other platforms. It can also give more detailed information on each patient, allowing the insurer to tailor solutions. When combined with AI and IoT, the system becomes more interactive, sharing data to and from the policyholder. For example, the blockchain system can monitor the individual’s health and help book medical appointments.
Obstacles Impeding Blockchain Adoption in the Insurance Industry
Many startups have launched successful blockchain models for the insurance industry, proving that the concept works. The problem, however, is that insurers are not always willing or able to adopt these solutions. Even though most companies agree that it is crucial, there are still some significant obstacles in the way. The most common ones are:
- Switching to blockchain platforms is seen as a time-consuming and costly process, as it disrupts the established models
- As blockchain is still in its infancy, many believe the technology is too complicated
- It is hard for many executives to ascertain the cost-benefits of using blockchain
Some of the arguments against blockchain adoption are understandable, given the substantial financial risk insurance companies are being asked to take. However, the insurance industry can use a similar approach to the banking industry: having trial runs.
Small segments of the business can be transferred onto the blockchain platforms and based on the successes they can then be moved to other aspects. The most effective way to accomplish this is by having a few firms come together to run the tests, instead of one firm trying to take on the challenge independently.
The free flow of information on blockchain-based platforms is another common cause for concern. Many fear security and data privacy can easily be violated if too many people have access to the information. However, different levels of encryptions can be implemented, as is done with cryptocurrencies. Only the people with the right access codes can view or manipulate the information, and the system is almost impossible to hack, which is more secure than cloud storage.
Another stumbling block, which might be the most severe of all, is government regulation. Insurance is a critical enterprise and is regulated heavily in all countries. While some governments are open to the blockchain, others are slow to accept it, as it is hard to control. Insurance companies are therefore not free to make their own decision.
The benefits of blockchain adoption in the insurance industry have been experienced by the few companies that have been willing to risk it. The true potential of it, however, is yet to be seen.
As over a third of insurance companies still express their doubts, it will take a lot longer before blockchain solutions are implemented industry-wide. However, as more of these systems come online and as executives become more familiar with it, we should expect to see more rapid adoption in the next couple of years.