Today, adopting technological advancements and evolving with them has become imperative for businesses. Blockchain’s advent is one of those technological advancements that businesses must adapt to evolve. Blockchain has proved to be a game-changing technology that is impacting almost every sector we know. Industry leaders, including the World Economic Forums, have already acknowledged the impact of blockchain in the insurance industry. So, let’s understand what blockchain can offer us in the insurance industry by enhancing its existing processes.
What is blockchain
Blockchain is a unique type of distributed ledger technology (DLT). DTLs involve ledgers or databases, where a peer-to-peer method controls the input and maintenance of data on them. The P2P method restricts any centralized authority or intermediary to control the ledger. Thus and so, we call it a decentralized ledger. The blockchain’s DLT derives its name from the way it is designed. The inputs onto the ledger are stored as an unalterable chain of transaction blocks, which are then validated and transmitted across the network.
Blockchain in Insurance
Blockchain has become a suitable solution for the financial services industry due to its potential for disintermediation, improved data reconciliation, and efficient transformation of legacy business models. In comparison to other sectors of finance, insurers have not been able to cope with recent developments in technology and changing customer preferences. However, the industry is dynamic enough to benefit from the blockchain technology. Blockchain can enable insurance providers to increase efficiency, cut costs, enhance customer experience, and improve data quality. Recent studies indicate that 46% of insurers are open to integrating blockchain in the coming years. Also, 84% of insurers believe that blockchain and smart contracts applications can transform the way that they engage with new partners and customers.
Blockchain’s potential can improve existing insurance processes, as well as enable new insurance practices. Enhancing existing insurance processes means, as a basic use case, insurers can use it pay salaries, premiums, and claims cost-effectively per transaction. On the other hand, forming new insurance practices requires a more radical implementation of blockchain app development. It involves executing actual insurance over smart contracts and decentralized applications (dApps).
So, let’s take a deep dive into some use cases and new opportunities created by blockchain in the following sections.
Enhancing Existing Insurance Processes with Blockchain
Revamping existing insurance processes with blockchain means the integration of technology to complement existing business practices.
Blockchain enables participants to share data in real-time in an authentic and traceable manner. Whenever a user adds a file to the blockchain database or requests to change it thereafter, it counts as a new transaction that is stacked and time-stamped across the network. Subsequently, it makes the history of any file completely transparent from beginning to end. With private chains or a combination of public and private chains, companies can grant access to files on a need-to-know basis. These things enable a blockchain solution or a distributed ledger to leave no single point of failure. They also ensure security and resilience than other traditional databases. Further, the capability to share data securely greatly enhances insurance operations and improves data quality, which ultimately reduces associated costs.
Regulatory compliance requirements like Know-your-customer and anti-money laundering (KYC/AML) prove onerous for banks and insurance companies. With a blockchain-powered shared database, they can streamline KYC/AML compliance while reducing the cost.
The onboarding of a customer can be done once by any single institution. Then, others can use the same information to onboard that customer in comparatively less time. For instance, a customer wants to avail of the services of a new institution. That institution can access the customer’s documentation already stored on-chain and perform due diligence. Here, encryption ensures that the institution gets access to documents to only which it is entitled. Finally, strengthened security of information can reduce the cost of hacks or other illicit cyber activities.
Fraud is a major obstacle for the insurance industry. By providing better communication and coordination between insurers and policyholders, blockchain can combat fraud. A blockchain-enabled shared database that has different levels of data access and control can enable insurers to prevent double-booking or processing multiple claims from the same accident. It can determine ownership of high-value items with immutable digital certification, and thus and so, reduce counterfeiting. Significantly, fraud mitigation is one of the compelling blockchain’s use cases in the insurance industry considering huge sums at stake.
Find complete details here: Preventing Insurance Frauds with Blockchain Technology
Blockchain can significantly improve payments and information sharing between insurers and reinsurers. With a blockchain-enabled shared database, insurers can use smart contracts to enter data onto it and make it accessible to reinsurers, retrocessionaires, and regulators in realtime on a need-to-know basis. Then, authorities can also extract data from the blockchain for automated modeling, audits, and compliance checks. In a nutshell, it can reduce risk, process claims with automated notification to relevant participants, and automate settlement and reconciliation of payments. A permissioned blockchain can improve data quality while reducing costs, errors and time. However, its implementation will need integrated cooperation among insurers and reinsurers.