Blockchain Technology: Reshaping the Future of Insurance industry
Blockchain has emerged as a massive trend over the course of this pandemic. Bitcoin and Ethereum being the investment of choice for many millennials, have helped further boost its significance.
However, the system existed well before that. Over the years, it has experienced severe changes, making it compatible with more than just virtual currency.
Blockchain stands to be incredibly valuable even for the largely traditional insurance industry. Let us look at what Blockchain is and its benefits and use cases within the actuarial sector.
What is Blockchain?
Blockchain is a decentralized database system that allows transactions and information to be signed, transferred, and validated without the intervention of a third party. This safe, open method of undertaking commercial transactions achieves previously unattainable levels of transparency, security, and trust.
Its other features are as follows:
- The information traded is encrypted in the form of an electronic sequence of records or blocks.
- The data cannot be deleted, which further contributes to trust.
- Once the information is stored, one cannot modify it without altering all of the data, allowing for safe user transactions.
5 Ways Blockchain Can Benefit the Insurance Industry
Blockchain and its various features can change the insurance industry for the better. In fact, it can prompt the beginning of more transparent and secure processes and cost savings.
Let’s look at 5 ways Blockchain can revolutionize the insurance industry.
1. Improve Customer Experience
Customers are constantly on the lookout for companies that provide lower premiums. Intense competition from new companies using innovative models like on-demand insurance coverage has aggravated existing insurers’ troubles.
In such cases, gaining consumers’ trust while minimizing pricing margins has become critical.
One solution is to leverage Blockchain to facilitate automated processing via smart contracts. In this arrangement, business agreements are incorporated into the Blockchain, and payments are automatically triggered when specific conditions are met.
2. Restrict False Claims
Fraud is a major cause for concern in the insurance sector. Even though insurance companies employ smart analytics and other automated strategies to deal with false claims, scammers continue to create sophisticated systems to defraud organizations.
The inherent nature of Blockchain in capturing time-stamped transactions with comprehensive audit trails makes it incredibly difficult to commit fraud.
Moreover, it is possible to decrease fraud when the industry adopts a common claims ledger for auditing with no per-transaction charge. All insurance parameters on the ledger can be monitored by regulators, making auditing easier.
3. Establish Trust Between Entities
Data integrity and greater transparency are essential features of consensus algorithms incorporated into Blockchain. These algorithms facilitate the creation of smart contracts on Blockchain, which can benefit insurance providers.
Furthermore, blockchains’ undisputable ledger allows smart contracts to enable transactions to be completed quickly and transparently.
4. Collect and Store Data Securely
Data is essential for insurance firms. In conjunction with other technologies such as the Internet of Things (IoT) and artificial intelligence (AI), Blockchain can collect a variety of useful data.
For instance, if policyholders who wear a fitness tracker volunteer to share data, they can avail a cheaper premium on the health coverage. Data generated by IoT are recorded on the Blockchain and later interpreted by AI, allowing the firm to make wiser insurance premium selections.
5. Allows for increased automation
Smart contracts simplify the insuring process and make transactions more transparent. As the Blockchain operates on the rules of the smart contract, the whole insurance claims procedure runs smoothly.
Furthermore, Blockchain runs these things automatically, saving insurance firms time, effort, and money by cutting administrative expenses.
Blockchain Use Cases for the Insurance Industry
Exploring the different benefits of Blockchain opens up so many possibilities for its implementation. Here are a few.
1. Build Smart Contracts
Smart Contracts are self-executing agreements that are automatically implemented using underlying blockchain applications to ensure that the conditions of agreements are met. The conditions of agreements between the policyholders and the insurance company are developed through coding.
All smart contract transactions are recorded on a blockchain. Hence, they are publicly available, enabling transparency. The absence of human intervention also decreases the danger of illegal manipulation, and contract errors are limited.
2. On-Demand Insurances
It is a versatile insurance model wherein policyholders may activate or disable their insurance policies with a single click.
Meddling with policy papers regularly may be cause for concern. However, with the advent of blockchain technology, keeping ledgers has become much more manageable.
On-demand insurance providers can use Blockchain to retain accurate records from the policy’s commencement through its termination.
Microinsurance protects against particular dangers in exchange for monthly premium payments. It only generates income when supplied in huge quantities. However, owing to high distribution costs and narrow profit margins, microinsurance products do not gain the traction they deserve.
Claims management and underwriting in microinsurance schemes may be automated using Blockchain-based on set rules.
Reinsurers protect insurance firms in the case of significant catastrophes such as earthquakes or wildfires.
Currently, insurance companies tend to engage several reinsurers, which necessarily involves exchanging data between various parties to settle claims.
However, when insurers and reinsurers maintain a common blockchain ledger, a firm can update the complete transactions involving premiums and losses on the computer systems of both insurers and reinsurers simultaneously.
Blockchain continues to develop each day to offer even safer and more comprehensive features. Owing to the potential of Blockchain technology, it is a must-have in any insurance company’s automation efforts.
It holds the key to solving almost every major problem in the actuarial sciences, including improving customer experiences and reducing false claims. Further, it aims to establish trust between the insurer and the client through smart contracts and minimize contact with policy documents through data stored on a blockchain platform.
Blockchain already has a plethora of use cases that are looking to be implemented. And the insurance sector should actively make an effort to employ them.