Emerging Blockchain Innovations in Insurance — II
Necessary investment for adopting blockchain technology is a big consideration for insurance industry at this stage, with an increased focus on accuracy and management of original information at every stage of the business.
Interaction of blockchain with other technologies means that existing intermediary roles will be replaced by new technologies in different sectors. If the insurance industry wants to continue developing, it cannot ignore the possible disruptive risks to existing distribution models posed by blockchain. The presence of localized blocks of data is going to be an inevitable reality, in line with the pace of technical development and regulatory constraints. And so, the decision to integrate blockchain-based technology and platform, shouldn’t be taken lightly by insurance companies.
As a P2P system, Blockchain via the DAO (Decentralized Autonomic Organization) — which is a virtual decision-making center, can lead to new methods of operation and applications for insurance products. In the future, some insurance products will effectively be smart contracts where coverage, terms and conditions will be the actual parameters of the smart contract.
01 Evolution of Insurance Products
Mutual Insurance will come into play, as premiums paid by each and every insured get stored in the DAO, with each and every insured participant having the right to vote and therefore decide upon final claim settlement when a claim is triggered. Decentralization makes the process transparent and highly efficient with secure premium collection, management and claim payments.
For Microinsurance products, blockchain makes it possible for end users to purchase insurance coverage at any time based on their actual usage, inception and expiration, with accurate records that remove any potential disputes.
Parametric Insurance, which requires real-time data interface and exchange among different parties, is an efficient form of risk transfer, but it still has potential for further, cost improvement through blockchain implementation. The efficiency of data exchange can be improved, and smart contracts can further reduce human intervention in claim settlement, indemnity payment, etc., which reduces operating costs, and increases operating efficiency, leading to better customer satisfaction.
02 Wide Applications in Auto Insurance
Blockchain has wider application scenarios for auto insurance products when combined with IoT. Be it a single-vehicle perspective, or complete fleets, the complete history of each vehicle can be stored in blocks, which can allow insurers to access accurate information on maintenance, accidents, vehicle parts conditions, history, and driving habits, facilitating accurate pricing.
The insurer also benefits from such dedicated information availability, as it simplifies the claims process and improves the efficiency of claim settlement. Blockchain and IoT can drastically lower big data acquisition barriers, which can benefits small and medium-sized carriers, by giving impetus to development of new products.
A smart contract can be linked to sensors on a vehicle that automatically alert insurers when a crash event occurs. The smart contract can summon medical & assistance services, launch the insurance claims process, and append police reports and crash photos as they comes in. All of this can facilitate faster claims processing with minimal human intervention.
03 Digital Claims Management
Blockchain provides inherent advantages in financial settlement. Through smart blockchain can be applied efficiently and securely throughout the entire process of insurance underwriting, premium collection, indemnity payment, and even reinsurance. When the parameters are met, policies will be triggered automatically by the smart contract and a record stored in the blockchain. The insured can automatically receive indemnity when conditions in the policy are met without human intervention to adjust the settlement.
Blockchain-based technology can improve the efficiency of international program settlement and daily management, by reducing data errors when dealing between different countries and regions, and avoiding currency exchange losses.
Business models like this will build higher trust in the insurance company, while increasing operational efficiency, reducing costs, and moral hazard.
04 Fraud Detection and Risk Prevention
Fraud prevention translates directly to higher margins for insurance companies, and cheaper premiums for consumers. Blockchain technology can enable better coordination between insurers to combat fraud. On a distributed ledger, insurers can record permanent transactions, with granular access controls to protect data security. Storing claims information on a shared ledger will help insurers collaborate and identify suspicious behavior across the ecosystem.
Currently, major insurers invest in data gathered from the public and private domains in order to better predict and analyze fraud, but it’s often inconsistent due to the barriers in sharing sensitive information between different organizations. An industry-wide fraud prevention system has not been developed due to such constraints around sharing personally identifiable information. Blockchain can fill this gap as a decentralised and trusted system of data storage & sharing and enable the enormous level of coordination needed among insurers to stop fraud, which will be hugely beneficial in the long run.
A blockchain-based effort to counter fraud can eliminate double-booking, or processing of multiple claims for the same event, establish ownership through digital certificates, reduce counterfeiting, and premium diversion.
Future Possibilities with Blockchain
Imagine an insurance ecosystem where:
• Insurers can obtain information more easily at lower transaction costs by registering real estate records on distributed ledgers.
• A smart contract can release funds immediately to the beneficiary upon automatic verification of a policyholder.
• A smart insurance product can trigger a travel insurance payout by linking to a real-time flight & weather data source.
• A smartphone location feature can trigger a smart contract for premium collection when a policyholder is travelling.
Overall, blockchain is an inspiring prospect and there is every reason to believe that this technological breakthrough will bring positive effects to individual insurers, insurtech and other stakeholders everywhere. But at the same time, insurance companies need to align around standards and processes within blockchain technology, and themselves be willing to work with each other. Most importantly, legal and regulatory frameworks need to evolve and provide clear guidance for blockchain technology to succeed in insurance.