Blockchain technology isn’t just for the financial industry anymore. It could have significant benefits for insurers, as well.While an assortment of recent technologies is transforming the insurance industry, blockchain could be the most significant of them. With its decentralized digital ledger platform, for example, it grants trusted users the ability to update documents in real-time, eliminating the need for an intermediary and speeding up transactions or claims. In addition, it stamps every new transaction or entry with the date and time, so any unauthorized users or hacks can be quickly spotted. These advantages could be indispensable to insurers that rely heavily on collecting and validating data to forge insurance contracts.
Blockchain technology doesn’t just host contracts and important documents. It also has the ability to actively process claims, helping insurers dramatically reduce the time needed to settle a claim. With a smart contract, a policyholder can submit a claim, have it instantly verified, and receive their payout without the aid of a human adjuster.
Several insurers have already begun exploring the use of smart contracts. Last year, Allianz Risk Transfer AG and Nephila Capital Limited announced a successful test of a blockchain smart contract for a natural catastrophe swap — a financial instrument that transfers the risk of natural disasters from an insurer to investors or another insurer.
There are some other exciting possibilities, as well. An insurer’s blockchain, for example, could be integrated with the high-tech systems in today’s cars. When a crash occurs, the auto’s Internet of Things devices and sensors could immediately alert the smart contract and initiate the payment process.
Individual Data Verification
Most insurance customers are forced to repeatedly enter personal information to obtain a policy, a time-consuming process that could expose their data to thieves. Fortunately, startup company Tradle has developed what is termed a Know Your Customer (KYC) blockchain solution to streamline data entry. With Tradle, individuals input their data, have it verified, and forwarded with their permission to an insurer or another company to close a contract. Having this information stored on a blockchain alleviates the individual’s concerns about potential data hacks and accelerates customer acquisition for insurers.
The insurance industry loses millions of dollar each year due to fraudulent claims, with The Coalition Against Insurance Fraud reporting annual losses of $80 billion. To better protect against these expenses, the verification tools embedded in blockchain can root out duplicate claim submissions, authenticate asset ownership, and even check police and medical reports. This particular function, however, requires cooperation between multiple parties, including insurers, manufacturers, and customers, to work.
In its report, “Blockchain in insurance — opportunity or threat?,” McKinsey & Co. estimates that the insurance industry is about five years away from fully implementing blockchain technology. As promising as it is, however, the insurance industry needs to address several challenges before it can realize its power to optimize operations and cut costs. It will need to work with regulators and other stakeholders to ensure the security of blockchain transactions by establishing a set of standards governing them. Similarly, insurers will need to expand their infrastructure so that it can store an ever-growing amount of data.
Despite these challenges, insurance companies are quickly identifying areas where blockchain technology facilitates customer service or streamlines internal enterprises and developing their capabilities there. As the technology evolves, they’ll soon see its broader applications and employ it for more and more functions.