Similar to the way in which blockchain has facilitated our ability to record electronic cash like Bitcoin, it can also help with creative and disruptive changes to the way business is conducted in Insurance. Let’s take a look at five key areas where it is most likely for transformation facilitated by blockchain to take place.
Fraud detection and risk prevention
Owing to its ability to provide a public ledger to many unverified or untrusted entities, blockchain can remove errors and find duplicitous or fraudulent activity. A transparent, decentralised digital storage space can authenticate the genuineness of the users, rules and transactions like claims by giving a comprehensive historical record. As it stands, insurers would be able to pinpoint duplicitous transactions as well as ones where there are questionable entities involved.
The early movers of the insurance sector are in the process of discovering how to utilise blockchain to decrease fraud and uncertainty attached to cross border transactions and remittance involving more than one currency. In specialty insurance and reinsurance markets, it is common for insurers to not be in direct contact with their end clients. This is the perfect place for blockchain to be utilised to address the significant inefficiencies and mistakes caused due to a substandard quality of information in the front end as well as the back end offices. Health insurers and regulators in America look at blockchain as a game changing weapon to battle Medicare fraud. Verification and authentication adds value to insurance procedure and forms the central focus of this blockchain use case.
False Claims Prevention and Management
With big data, mobile and digital advancements in technology, blockchain is needed to create an effective, transparent and user focussed claims model centred around a higher level of trustworthiness. In the claims prevention space, fresh streams of data can improve the procedure involved in risk selection by binding together the location, the risk presented by outside circumstances and analytics. A distributed ledger can help the insurer and the many third parties access and update required data with ease and speed (for example, claim forms, police reports and third party review reports).
Using data from a phone or sensor can help to increase efficiency in claims submission, decrease loss adjuster costs and improve the satisfaction level of the users. Blockchain can enable effective communication and relevant coordination among all entities involved. Think about how sensors can alert insurers of a crash that has taken place (which would initiate a fresh claim) and then direct secure, suitable data to pre-approved and well placed medical teams, towing services and if needed, repair garages. Once again, blockchain will connect and order information from various devices and applications involved in this multidimensional process.
The combination of sensor information, images from the satellite, mobile technology and blockchain can enable claims payment and services aimed at rescue missions during times of natural disasters in remote places. Information from weather stations can help us decide the claims amounts based on real weather reports and blockchain can facilitate a higher level of automation, greater efficiency of data sharing and stronger precautions against fraud.
Internet of Things and Product Development
As an increasing number of devices and appliances are synced with the Internet of Things, the amount of information that will be generated and stored will substantially go up. This will be very valuable data to insurers who are constantly looking for ways to build actuarial models with greater accuracy or fresh products like Usage based insurance models (UIB). In the market of auto insurance, for example, look at how encrypted information is a collection of driving times and distances travelled, patterns of acceleration and braking and any other such behavioural pattern which can be utilised to find high-risk drivers, authenticate data included in suitable applications and provide customers with more control on their insurance premiums.
The obstacle for the future is centered around how to effectively manage the significantly large volume of information and logic as millions or even billions of appliances and devices are in contact in some capacity with one another. Blockchain technology will allow us to manage these big, complicated networks by getting the appliances to be in contact on a peer-to-peer basis in a secure fashion rather than developing a costly data centre to deal with the processing and storage load. Enabling self management of these devices will be far more cost effective than the data centre model.
New Distribution and Payment Models
Various global insurers are in the process of developing partnerships and discovering fresh payment business models to attain monetary efficacy via global ledgers. Enhanced automation to capture risk information in contracts, also provides fresh opportunity to develop an understanding of the market, implement a smooth payment process and bring financing risk to the table. At the very least, global insurers can utilise blockchain to reduce asset management costs by decreasing the hedging fees paid to keep themselves safe from fluctuation of currency in global transactions.
Another possible use case is mobile wallets. Insurers who are building this solution will usually limit the customers’ options and restrict the information that can be included. Blockchain can enable wallets to attain an engagement of users at scale with customised functionality and more effectively incorporated information which would otherwise not be possible.
Property and Casualty insurers aiming to gain a clearer understanding of the reinsurance contracts and exposures to risk may do so with Blockchain. Let’s take the case of an insurer looking to offload the same amount of risk to two different reinsurers. A blockchain ledger could shine some light and provide notification if one of the reinsurers further attempted to offload a portion of it to a subsidiary of the other reinsurer. It would enable insurers to be confident about the fact that as they pay out claims, they are suitably rebalancing the exposure of their capital against specific risks.
In the reinsurance space, the advantages of blockchain extent to more accurate calculations of reserve centres on actual contracts of participation and automatic updates of calculation one the underlying information is updated. In addition to this, insurers get greater flexibility in moving around money and increased transparency of known risks, capital efficiency and monetary requirements needed for compliance. This makes it easier to follow audit trails, modelling needs are significantly decreased and there is a reduced requirement for coordination between IT and Finance.
In a time of specific innovation like mobile apps, blockchain represents a more foundational invention. From that point of view, blockchain can support and possibly even drive increased use and wider adoption of tons of digital innovations that have changed the landscape of Property and Casualty insurance.
Executives who find themselves unsure of the potential of this technology should recognise that blockchain will facilitate increased trust and transparency and this resonates with the heart of the business of insurance. The industry’s central promise of trust and “promise to pay” are centred on full disclosure of correct personal information explaining the insurable interest of the customer, the agreement represented in a contract between two entities and time sensitive exchange of payment.
Blockchain can aid us in eliminating friction, uncertainty and mistakes from all of these important stages. There is real substance behind all of this hype and build up, but the insurance sector has to invest in it now to propel themselves to a place from where they can take advantage of the increase efficiency and opportunities blockchain can deliver in the long term.