The very first insurance concepts emerged thousands of years ago. Chinese merchants created emergency joint funds to cover damages from weather or pirates. Ancient Greeks and Romans had guilds that cared about families of deceased members. Today, technologies are much better… But insurers still use paper policies and vulnerable databases.
What’s wrong with this legacy approach? Apart from low convenience, these systems represent numerous points of failure. Valuable customer data can be lost, entered with errors, and even stolen. Happily, there’s a solution. Blockchain can reshape the entire industry by delivering transparency with reliable protection from frauds.
In fact, 100% of PwC respondents plant to integrate blockchain solutions into their insurance
products by 2021. This fact reveals that underwriters are interested in innovations. Still, it’s not simple. In the article, we will show the use cases of blockchain in this industry, check its advantages, and find disadvantages.
Blockchain Benefits for Insurance
Later, we will cover critical hurdles that blockchain adopters in insurance face. But firstly, let’s focus on opportunities. Today, insurers actively study ways in which they can use blockchain concepts. Overall, blockchain can reduce paperwork, eliminate human errors, cut administrative costs greatly, and improve satisfaction. The technology represents a next-gen interaction way. Further, we list four major use cases for the reviewed topic.
1. Fraud Detection
Blockchain-based insurance systems can fight fraudulent activity successfully. Let’s imagine a shared ledger available to insurance companies and immutable. It will generate priceless info that unveils patterns of malicious actors’ behavior
. Thus, underwriters are able to receive three benefits:
Fight double-booking.
Remove counterfeiting.
Reduce premium diversion.
Additionally, blockchain will simplify communication between insurers. They will see different actions, so automated systems will process information with better results. Moreover, transparent data stored in blockchains will be free of legal constraints. Being cryptographically protected, information can be shared among related parties fully.
2. P&C Insurance
Here, the idea of smart contracts is crucial. Today, clients have to wait for months and even years until they get paid the full compensation. With smart contracts – automated agreements with predefined rules – claims management can be automated. Paper contracts can become digitally-represented code forms available to all insurers. This approach removes duplicating requests and decisions as each policy lifecycle stage becomes automated.
It’s easier to understand the case on the example:
Underwriters deploy blockchain solutions.
A smart contract links to your car’s sensors or registrars.
If a road accident occurs, this smart contract notifies insurers.
It also launches the claim process and notifies you about it.
As well, it records all the related information.
Automated systems or human operators launch payout processes.
In this case, all parties have the same info available, so they avoid double-entries and checks. As a result, payments come much faster.
3. L&H Insurance
Again, health insurance can get the same benefits: less paperwork and much simpler management processes. With blockchain, healthcare facilities and clients can check information faster. It helps to avoid data fragmentation, so patients get smoother interaction experience based on sufficient profiles.
Nevertheless, a more important factor that can drive blockchain-powered L&H insurance relates to security. Sensitive data of patients is the desired target for hackers/frauds. With blockchain, it’s possible to protect it more efficiently. Insurers and healthcare institutions maintain perfect client privacy thanks to encryption.
4. Reinsurance
The concept of reinsurance provides for the protection of underwriters from various accidents and market disasters. For instance, when hundreds or even thousands of claims occur simultaneously, an insurer can face problems with payments. For this, companies purchase policies from reinsurers – just like customers get them from traditional insurers.
The catch with this process is that underwriters have to share their info with many reinsurers. Thanks to blockchain systems, data is available for both parties simultaneously. This improves real-time reactions, removes the need for reconciliation, and saves resources for all participants. Actually, it works similarly to traditional insurance.
Some Drawbacks
Undoubtedly, blockchain is a highly attractive technology with enormous potential. It can change the whole insurance landscape. Nonetheless, being at the current development stage, blockchain also refers to some risks:
New attacks. Hackers respond to innovations by their own ideas, for instance, a 51% attack. Put simply, if one person or group controls 51% or more of the network’s hashing power, they can approve any transactions they want. Until we don’t have reliable protection from this and other attacks, it’s dangerous to implement blockchains globally.High expenses. Enthusiasts tend to treat blockchain as a magic wand that solves all the issues. That’s wrong. But blockchain is an expensive technology, so its implementation enables additional expenses: on tech, staff, etc. Thus, if your operations don’t involve intermediaries or these parties are trusted, blockchain may be redundant.
Regulative issues.
Insurance is a highly regulated industry, on par with finances. The reason is they process loads of sensitive data. Simultaneously, blockchain remains in the grey zone as the majority of governments still don’t have standards for this tech. Means, it may be too early to implement it.
Scalability questions.
On the other hand, if your insurance business processes involve a lot of participants (both employees and clients), modern blockchains fail to meet your needs. A lot of them are simply underdeveloped. A basic enterprise insurance software solution now is more potent than hyped blockchains.
Blockchain-Only Industry
Of course, it’s too early to say about fully decentralized insurance sectors. It’s the industry that even hasn’t completed cloud transformation fully. We still see numerous phone requests, paper-based policies, and legacy servers that can be hacked with ease. A few critical issues related to regulation and evolution costs slow down the development.
We can’t say if the insurance industry will be revolutionized soon. But we see that a lot of top-rated companies like IBM deliver enterprise blockchain solutions. They feature higher centralization but are also more convenient for traditional businesses. From this point, blockchain enthusiasts can start disrupting modern insurance, most likely.
Also social graphing is very important.
Eric Leader is owner of Every Body's Personal Trainer