In the ever-changing landscape of finance, a remarkable phenomenon has taken hold: the rapid growth of decentralized finance, or DeFi. This ...
The insurance industry has been around for centuries. Dating back thousand years, Chinese merchant seafarers pooled together their wares collectively to pay for the damages of an individual’s capsized ship.
With the advent of new technologies, the way many industries operate has changed, even the insurance industry. Although in comparison to the other industries, the rate of innovation in the insurance industry has been slower. Despite the increasing number of online brokers, many consumers still contact the insurance brokers to purchase new policies, which as often processed on paper contracts.
Each step in this traditional insurance industry is a potential point of failure for the overall system, resulting in information loss, misinterpretation, and long-settling times. Pitfalls like these make room for innovative technologies such as Blockchain.
The implementation of Blockchain in the insurance industry has undoubtedly increased, as mentioned in the stat given below:
Source: Blockchain Insurance Market - Industry Analysis and Forecast (2019-2027) (maximizemarketresearch.com)
Role of Blockchain in the Insurance Industry
Indeed, the hype around blockchain technology is often centered on cryptocurrencies, but the true application of blockchain range far more than just Bitcoins. Blockchain technology can be a transformative technology for industries such as insurance and banking, which require a collaboration of several stakeholders.
Getting to an expected place in the insurance industry can be a daunting task with blockchain technology, but believe us, the results can be overwhelming. Insurance companies and various start-ups are experimenting with this ground-breaking technology.
The applications of Blockchain technology in the insurance company are as mentioned below:
Source: Blockchain In Insurance Market Size, Share and Global Market Forecast to 2023 | MarketsandMarkets
1. Smart Contracts
Traditionally the insurance organizations rely on trusted intermediaries to execute the transactions. But with the involvement of a third party, the process becomes slower and expensive taking months to be processed.
With the help of smart contracts, human interference can be reduced. Smart contracts help mitigate the risk of manipulation caused by the mediators and also increase transparency. Smart contracts are stored on the Blockchain so that both parties can see logged transactions. An additional advantage of using smart contracts is that they speed up claim processing, reducing administrative costs for the organizations.
2. Fraud detection and risk prevention
The total cost of insurance fraud in the healthcare insurance in the United States is estimated to be more than $40B a year, according to a report by the FBI. The complexity in the modern insurance industry creates various gaps of invisibility that can be exploited to perpetrate fraud. This also creates opportunities for the criminals to make multiple claims across different insurers for a single loss.
Blockchain enables better communication and coordination between insurers to combat fraud. On the distributed ledger, insurers could record permanent transactions with granular access controls to protect data security. Storing claims on the information in the shared ledger would help insurers to identify suspicious behavior across the ecosystems. Reduction in insurance translates directly to higher margins for insurance companies which can lead to cheaper premiums for consumers.
3. Property and casualty insurance
Property and casualty insurance is a big business. According to Mckinsey, this accounts for more than one-third of all insurance premiums in 2020 or a total of $1.6 trillion. The claims associated with P&C data are scattered across multiple locations and are controlled by different parties, making claim resolutions a daunting process. Due to the above-mentioned issues, P&C is such a compelling use case for blockchain technology.
By allowing separate policyholders to track the physical assets digitally blockchain technology can codify and automate the claiming process through smart contracts. With the help of Blockchain technology, onboarding new clients become easy and more efficient. When the information of the customers is stored on the ledger-based database, all the insurers can enjoy access to that information.
4. Life Insurance
Life insurances are claimed in most of the gravest times. When someone loses a family member, filing a life insurance claim is not likely to be on the top of mind, and sometimes we even forget the fact that a person had a life insurance policy in the first place. The death-claim process is also archaic and can take anywhere between a few weeks to over six months.
Blockchain technology can simplify the process by allowing for greater trust between the insurers and the person insured, increasing transparency in the complete process. The claim process can be started immediately with the death of the insured person, helping to lift the pressure off the deceased person’s family.
5. Advanced Automation
We are well aware of the fact that the insurance ecosystem contains millions of stakeholders. From insurers to healthcare providers to patients, some players are involved in the industry, making it easier to get bogged down by money and time-wasting inefficiency stemming from billions of forms.
Digital ledgers such as Blockchain can help the insurance industry to automate its outdated processes and save billions of hours of paperwork each year. Blockchain technology in finance and insurance can als0 help to increase communication that allows for easy collaboration between patients and doctors.
6. Cyber-security strong-hold
The ability of blockchain technology to safeguard sensitive information is enticing to an industry that relies heavily on the data collected from the intersection of three major areas of an individual’s life- health, work, and personal life.
The data-ledger presented by Blockchain technology is decentralized, and hence can’t be corrupted or manipulated by any authority. The data is chronologically time-stamped to ensure a clear recording of the events.
While it is quite evident that Blockchain technology is still in its initial phase in the insurance industry and has a long way to go, but the number of promising applications is countless. Many insurance giants such as Allianz and Swiss Re are leveraging the solutions based on blockchain.
Despite the strong interest in Blockchain technology, there is still a lot of groundwork to be done before the technology realizes its full potential. Also, the insurance industry is highly regulated in terms of consumer abuse, which means that the regulatory frameworks need to evolve and provide clear guidance for blockchain technology to gain more traction within the industry.
Blockchain technology has the potential to change how insurance companies do business. Leverage most of this technology with our ground-breaking Blockchain app development solutions. Visit us now to hire the best app developers.