Blockchain in Insurance
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Blockchain: Applications in Insurance
Blockchain is much more than the database ledger technology that powers bitcoin. It is an innovative technology that will open new business opportunities, reduce transaction costs, and improve security, efficiency, and trust in existing processes. It has the potential to cause massive disruption and create great transformation in the insurance industry.
Mobile computing and the Internet of Things (IoT) are beginning to change how insurers interact with customers and bringing in new offerings, and are lowering the barrier to entry for new and innovative entrants.
Blockchain is laying the path to some of the insurance industry’s largest disruptions. By getting ahead of this technology, insurers can overcome existing pain points, and improve operations in:
- Fraud detection and risk prevention
- Claims prevention and management
- Product development / Underwriting
- New distribution and payment models
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Five major impacts of blockchain in the insurance industry:
1. Blockchain in Insurance: Improving customer engagement
Customer engagement in the insurance industry has always been low. This is because there are typically few touchpoints in any given period of time and these are often intermediated by brokers. Furthermore, people have an innate fear of sharing their private data and resent the repetitive data-entry processes typical of insurance company interactions. These barriers to customer satisfaction can be mitigated with blockchain.
Digital identity records stored on a blockchain will allow for new kinds of discrete interactions with customers while protecting privacy and satisfying regulators. Blockchain-based digital?identity utilities will accelerate and simplify customer onboarding across various parts of an organization. They will reduce institutional exposure to fraud and customers’ risk of identity theft while allowing customers to maintain control over their personal data.
2. Blockchain in Insurance: Improving customer engagement
Blockchain technology presents opportunities for cost-efficient product offerings in new markets. These markets include peer-to-peer (P2P), micro-insurance, and parametric insurance.
P2P insurance fundamentally changes the traditional insurance business model. In this new model, pools of individuals cross-insure each other while insurers shift their focus from asset management to providing customer need-based product recommendations and premium risk-assessment services.
In the P2P model, investors bid on the demanded insurance through crowdfunding or P2P interactions. Smart contracts are used in an escrow-like capacity to guarantee payment from the investor to the claim recipient (or vice versa) when an insurance-demand event occurs. Transaction efficiencies are achieved through automation and the removal of third-party intermediaries. Additional savings are possible because there is no longer a need to invest the capital required to insure as this role is taken on by investors.
3. Blockchain in Insurance: New offerings leveraging the Internet of Things.
The Internet of Things (IoT) refers to the connection of devices to the Internet. These devices often use sensors and network connectivity to collect and communicate data. Cars, electronic devices, wearables, and home appliances are all insurable products that can be registered by smart contracts in a blockchain network. They can be insured against theft or loss, or for their quality of performance within predetermined parameters. IoT sensors can be used to determine the state of an insured object or system and, in partnership with smart contracts, can facilitate payment of any claims to the policyholder or certified repair shop with minimal cost, friction, and lag time.
In an IoT-enabled world that includes a blockchain-powered “ledger of things,” the amount of data available to insurers will significantly increase, allowing insurers to gain a better understanding of customers, policies will be built to match their needs. For example:
Insurers can assess clients’ risk levels proactively and continuously with great precision.
Insurers will then be enabled to create accurate, dynamically-adjusting actuarial models, allowing for a more personalized customer experience.
IoT, combined with the efficiency and lower transaction cost enabled by blockchain, will allow insurance companies to change the risk profile of a policy through discounts and rewards for safe behaviour.
4. Blockchain in Insurance: Reinsurance reconciliation
Blockchain provides a solution for reinsurers seeking contract transparency and risk exposure insights. The immutable and transparent nature of a blockchain makes reinsurer attempts to offload policy portions to subsidiaries visible to insurers. It also ensures appropriate and responsible re-balancing of capital exposures against specific risks. Additionally, with a single, verified version of the truth, auditing costs are substantially reduced.
5. Blockchain in Insurance: Fraud Detection
Fraud is a prodigious problem in the insurance industry. Blockchain can significantly reduce instances of both hard and soft fraud by confirming client identity and ownership of insured assets, as well as the authenticity of the assets themselves. This is achieved through connection to external registries or by building new blockchain-based registries that may be shared among insurance ecosystem participants. With a decentralized digital registry, insurers can verify identity, spot duplicate transactions, and prove the date and time of policy issuance or product purchase. A blockchain provides a complete and immutable history of a client’s activity, making fraud more difficult to commit but easier to detect.
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Creating new value
Blockchain offers insurers the ability to automate and optimize back-end process across the value chain. It allows for a more efficient and trusted exchange of information, simplification of the claims submission process, reduction of fraud and costs, and integration with IoT and other emerging technologies.
Blockchain also balances the relationship power dynamic, giving the customer more control over their personal information by moving the control of the terms and variables of a transaction closer to them.
To navigate these rapidly changing insurance industry dynamics, it is essential to understand how blockchain will transform existing business processes and business models and enable ones. Contact us today to learn more.