For many years now, the conventional approaches to the insurance business had been proven largely to be very resilient. However, now the traditional approach to insurance is getting influenced by the digital effects, and many other emerging technologies tend to change how consumers interact with businesses and how the services and products are delivered. One such technology which is there in the frontline of this revolution is blockchain. As corporate giants like IBM adopt many implementation strategies, blockchain breaks all the boundaries to give a unique insurance experience. The goal of blockchain is to automate the claims and underwriting while modern-day enterprises develop smart contracts between various blockchain accounts for making the transactions more secure and quicker.
Primarily, blockchain is a decentralized and distributed ledger, which acts as the backbone of bitcoin. The transactions through blockchain are free to use and also have a greater potential to change the ways as to how insurance is contracted fully. Blockchain also helps optimize the efficiency, transparency, and security of the entire insurance sector and uses public ledgers and cybersecurity protocols. Even though blockchain’s implementation in the insurance sector is still in the infancy stages, many sectors successfully use this technology, including the companies offering trading, travel insurance, etc.
1How Blockchain Works for Insurance
Each block on the blockchain comprises digital pieces which contain information that exists in three different parts. The primary one stores information about the transactions like time, date, purchase value, etc. The second part may store the info about the participants in the transaction. The third may store more information that distinguishing one block from the other given blocks.
When there is a transaction, this process goes as below
- Creation of a new block representing a transaction.
- Verify the block across each network participant.
- Attach cryptocurrency or other work proof to the block.
- Add the block to the given chain
- Update the network and finalizing a transaction
As blockchain databases are huge storages of recorded information, the technology opens the door to improved processes in healthcare, entertainment, finance, insurance, etc. For secured database management for blockchain, providers like RemoteDBA.com can help. One major primary use of the case of blockchain involves automation operations like document transfers, negotiation of contract terms, and cybersecurity, etc. In a real-time example, insure-tech companies like Ryskex help their insurers to find easier ways to assess their risk and handle it accordingly through blockchain-based processing. As per a Gartner report, blockchain may be one of the most heavily adopted technology by 2023 and may also be about a $3.1 trillion industry by 2030.
2Blockchain for the Insurance Sector
The insurance industry exists for many decades now but has remained more or less the same throughout the times. Most of its processes, as being followed even by the leading providers, are now outdated. Many policies are still being processed on paper; the consumers also need to purchase their new policies in person. The claim processing is a very arduous process at both ends, and the list goes on.
Even though all these processes work that way, there is a big potential for human errors with many risks when it comes to information sharing. It can be lost or misinterpreted at various levels. It is also possible that this information can tamper. Insurance fraud reporting agencies have found that about 10% of all the property insurance losses are due to these, which results in about $80 billion being stolen from the consumers annually. Due to this, there are many scopes left in improving efficiency, security, and customer satisfaction when it comes to insurance processing, which is where blockchain can be a helping hand.
Even though blockchain is a hopeful solution in insurance, it also comes with its own set of obstacles. Insurance companies must be ready to overcome many legal and regulatory challenges before embracing modern technologies like blockchain. Various blockchain features could be found inconsistent when it comes to being compliant with the existing insurance laws. For example, the customer data and the policy data related to an insurance policy, which is stored on the blockchain, must comply with the data security and confidentiality guidelines set forth by different agencies. Also, the decentralization process of blockchain will strengthen info sharing and also help reduce information asymmetry. Blockchain adoption may also put forth many new challenges to the management in terms of pricing, product building, claims, and more.
Property insurance usually consists of home and commercial insurance etc. Processing the claims for property insurance now needs huge manual effort, which further leaves a fair chance of human errors. Blockchain technology may also make claim processing much quicker and also much cheaper by using blockchain. With the help of shared ledgers and smart contracts, it can automatically execute the auctions based on some pre-specified conditions to issue insurance policies, claims, and payment processing. All these can be automated to create a more accurate and efficient process. There are many types of smart contracts that can convert the paperwork to programmable codes and fully automated the claim processes.
Again, there are some outdated approaches for insurance processing, which leaves more room to further errors, and there is also scope for any potential fraud. To tackle this, insurance providers may have to store their claims. The insurance companies may store their information on the ledger, which may help them effectively communicate with and spot any suspicious behavior. So it helps them manage and streamline their operations better to get the most out of their resources.
Blockchain technology also helps to enhance efficiency, increase trust, improvise claim processing, processing claims smarter. Also, it can reduce the chances of any cyber-attack, which is very important for the finance sector. It can also effectively help reduce the operational cost and also enhance the privacy of insurance processing altogether. The possibilities are endless, and blockchain is ever-growing as a technology still in its infancy stages now.