The insurance industry is an ever-growing business. However, because of its age-long existence, it faces many problems that not even modern solutions can solve.
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But, if you’re in the industry, you don’t have to worry anymore. Blockchain is here to help solve problems in the insurance industry.
Today, we’ll be discussing what blockchain is and how it helps solve various insurance-related problems.
If you don’t know these things, read on to learn about blockchain in insurance!
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Understanding Blockchain in Insurance
Blockchain is a database system used to sign, exchange, and verify transactions, which doesn’t need a central party’s control.
Using a blockchain builds transparency as it is a secure and open way to make transactions. Additionally, there is also security and trust between customers and the business.
Through blockchain, transactions are revolutionized, and inter-stakeholder relationships are built. As a result, there is secure and accurate data in the ecosystem.
Additionally, insurers can integrate blockchain with other systems and technologies. In the insurance industry, blockchain is used to automate processes and create new products that were once deemed impossible.
How It Works
Traditionally, businesses use a centralized database system. However, there are a few drawbacks to this, including data tampering.
Unlike a centralized system, a blockchain is centralized, where records are maintained on different computers simultaneously.
These records called a distributed ledger, are accessed by users who have a shared copy.
When information gets added, each new information “block” is “chained” to the old ones. This creates a permanent and indestructible information sequence.
What makes blockchain secure is the data confirmation done by several computers before adding them to the ledger. Additionally, users are required to use unique codes to access individual information blocks.
If someone uses an incorrect access code, the system will reject the data addition and leaves tampering evidence.
Blockchain Use Cases in Insurance
Because of the security and accuracy blockchain offers, many insurance companies have started integrating blockchain into their business. However, those are not the only things companies could get from using blockchain.
Below are several blockchain use cases in the insurance industry.
Reinsurance
Reinsurance is the insurance that insurance providers use to protect themselves every time there are plenty of claims.
Given the many cases of fraudulent insurance claims, there is a need for insurers to protect themselves. However, the reinsurance system isn’t practical because there are long processes and information silos.
Blockchain can help solve these problems.
For one, insurance providers can use it to analyze claims and detect tampered ones. Another advantage it can bring is reinsurance is faster processes through data sharing.
Through blockchain, operations can become more efficient, and the reinsurance industry can likely save $10 billion.
On-demand Insurance
On-demand insurance is an insurance model that allows the insured to activate and deactivate their insurance policies in one click. Of course, when there are a vast number of policy documents, insurers have to deal with a ton of records.
For example, on-demand insurance requires various processes, such as underwriting, risk, and claims, in contrast to traditional insurance plans.
However, through the use of blockchain, insurers can maintain records more easily. On-demand insurers can use blockchain to make record-keeping more manageable, from the policy’s acquisition to its disposal.
Microinsurance
Unlike traditional insurance policies that cover several perils at once, microinsurance provides coverage for specific hazards. Given this, its premium payments are less, and it can only earn a profit when purchased in high quantities.
There’s also a low-profit margin, and distributing microinsurance is costly. As a result, insurers don’t get enough exposure for their microinsurance plans despite their advantages.
Through the use of blockchain, there can be an insurance platform that insurers can utilize. With this, insurance providers can employ fewer agents and use “oracles” on-site.
Benefits of Blockchain in Insurance
As we’ve said, there are benefits to using blockchain in insurance aside from security and data accuracy.
In addition to blockchain’s use in the insurance industry, blockchain also offers benefits to both insurers and policyholders.
It helps block false claims.
As we’ve mentioned, the insurance industry suffers from financial loss due to thousands of fraudulent claims. And while insurance providers use technologies and other methods to deal with false claims, fraudsters still find ways to trick the system.
As we’ve mentioned, blockchain has a feature that timestamps transactions. This helps detect fraud and tampered documents that make false claims nearly an impossible job for fraudsters.
For example, a blockchain ledger can track information about high-value properties and jewelry and replace authenticity certificates to avoid false claims.
It can improve the overall customer experience.
Insurance customers have been gaining confidence because of the Internet. Customers have started to look around for other insurers that offer lower rates and better policies.
Due to this, customer retention no longer depends on price differences.
One method to solve this is to use blockchain, automate processes, and use smart contracts. Through these steps, contracts are added to the blockchain, and payments are automatically made when specific conditions are met.
It can retain and attract digital-savvy customers.
With the rise of the internet, today’s digital-savvy customers no longer find old insurance policies relevant. Thus, insurance providers have to step up and innovate new products that can interest these customers.
Through blockchain, insurers can start offering parametric insurance that uses smart contracts.
One example is using anti-theft sensors placed in a home. These sensors can start an insurance claim once they go off and when specific conditions are met.
For instance, anti-theft sensors attached to a connected home can trigger an insurance claim the moment they go off and when certain other conditions are met.
By including the agreement in the blockchain, insurance providers can make claim-related processes faster, and expenses can be made lower. With this, insurance customers can benefit, and insurers can offer competitive rates to their customers.
It increases transparency.
Due to the bureaucracy that comes with insurance, customers don’t always see the processes behind the scenes. This is where blockchain comes in handy.
Transactions that are built into the blockchain leave an auditable information trail. This means that anyone can look into a process and why it’s happening.
Industries That Benefit From Blockchain
Due to the many benefits and practical use cases of blockchain, insurance industries have started employing it. However, others are quite skeptical.
If you don’t know if the insurance industry you’re in can benefit from blockchain, read on. We’ll enumerate some of the insurance industries that can benefit from using blockchain.
Travel Insurance
Travel insurance helps protect you against the hassle of canceled flights. The downside? Travel insurance is generally bureaucratic.
However, using blockchain can help customers buy travel insurance policies more conveniently through a decentralized mobile application.
Auto Insurance
When auto insurance providers use blockchain-driven technology, customers get better service because policyholders get more competitive rates and accident claims more efficiently.
Additionally, paperwork won’t be a problem, and the underwriting process is also much more straightforward. Also, calculating the customer’s car’s value can be done in a snap.
Health Insurance
Using blockchain can help improve health insurance policies and healthcare provider operations.
What blockchain does is connect healthcare providers to patients using comprehensive data analysis?
Also, blockchain can help uninsured customers purchase insurance more quickly and at lower rates.
Life Insurance
Let’s face it, life insurance is a handful of paperwork, especially when an insured loved one dies and beneficiaries get a payout. Due to this, processes can get inefficient, and people have to wait longer for their claims.
Through blockchain, insurers can integrate processes related to death claims and registrations. With this, involved parties, including the insurance provider, funeral homes, and beneficiaries, connect.
Insurance Industry Problems That Blockchain Can Solve
The insurance industry faces several drawbacks because of its age-old existence. It’s also heavily reliant on paperwork and bureaucratic processes.
In addition, there are a lot of fragmented data sources that make it an easy target to fraudsters. Another problem is that the industry generally doesn’t like change.
However, blockchain can help the insurance industry realize these within the industry.
As we’ve mentioned earlier, there are benefits that you can get from using blockchain. With this, blockchain helps solve problems in the insurance industry, aside from fraudulent claims. Here are some of them:
Fraud Detection
Every year, cases of fraudulent insurance claim amount to at least $40 billion in the United States, excluding health insurance. Even when digitization has already been applied, companies’ traditional ways still fail to detect fraud.
This is where blockchain comes in.
Blockchain makes sure that transactions are permanent and dated. Nobody can change the information to prevent tampering, even insurers.
Because of this, the existing patterns of fraud are detected, which insurers use to help stop fraudulent transactions.
Claims Prevention and Claims Management
As we’ve said, the insurance industry relies heavily on paperwork and tedious processes. Because of this, it isn’t efficient, especially when it comes to closing agreements.
Due to the bureaucracy tied to the industry, customers wait a long time to update their policies and settle payment inquiries. Even the phone queue can be tiring.
However, blockchain can solve this problem by automating business operations which can result in more convenient and easier business processes.
As these processes serve customers better, the overall business operation becomes more efficient and leads to better results.
Property and Casualty Insurance (P&C)
Customers acquire property and casualty insurance to protect themselves and their belongings. The “casualty” portion of this insurance policy is the liability coverage that customers get when they’re at fault for third-party injury.
However, the downside to P&C insurance is its industry’s inability to follow modern standards that lie on convenience and time.
Through blockchain technology, P&C insurance providers can speed up their processes related to claims and fund withdrawal. Additionally, blockchain can also help maintain the precision of these processes.
Underwriting
Underwriting, in simple terms, is assessing a customer’s risk and their capability to face exposures.
Generally, underwriters determine how much insurance a person should receive and how much it should cost them. They could also decide not to provide insurance to someone.
However, underwriters use clients’ current and historical data. Thus, business operations need to use multipurpose database systems to make the process efficient.
Blockchain helps automate these processes or, if not, helps make them faster. It also helps with data accuracy because clients can confirm the data’s origin and accurate information.
To Wrap Up!
The insurance industry has been struggling with the hassle of paperwork and bureaucracy. With this, insurance providers must find ways to make processes efficient for them and their customers.
This is where blockchain comes in.
Blockchain in insurance is a helpful tool to make the insurance industry better. It does not only help solve significant industry problems but improves the sector overall.