Blockchain Application for the insurance industry sounds odd, right?
Blockchain technology is not limited to cryptocurrencies like Bitcoin; it has numerous applications across various industries, including healthcare and insurance.
The unique features of blockchain can help insurance companies reduce costs, enhance customer service, and boost their bottom line. As a result, insurance companies can remain competitive in today’s marketplace by embracing blockchain technology. This blog post will explore the use of blockchain in insurance and its use cases in the insurance industry for future endeavors. So, let’s take a closer look at how blockchain can benefit the insurance industry.
Importance of Blockchain in Insurance
Can Blockchain Save You from Fraudulent Activities?
While the COVID-19 pandemic has brought insurance into the spotlight, it would be inaccurate to overlook the role of the insurance industry’s contribution to US revenue. Unfortunately, however, recent fraudulent activities have been causing a dent in the industry’s popularity. Fortunately, blockchain technology has emerged as a game-changer in addressing fraudulent scenarios in the insurance industry.
By leveraging the unique features of blockchain, insurance companies can enhance transparency, comply with regulations, and build better products and markets. Let’s delve into some of the exciting benefits of blockchain technology in insurance.
Facilitates Operating in Competitive Environment
Tamper-proof Audit Trails
Empowers More Automation
Smart contracts play a significant role in enabling transparent transactions and streamlining the insurance process. Insurance companies can execute smart contract terms to make the claims process smoother and more efficient.
The automatic nature of blockchain technology is particularly exciting, as it allows the insurance industry to automate their processes. This, in turn, helps to reduce administrative costs, ultimately saving time, effort, and money. The disruptive nature of blockchain also offers an opportunity to regain its declining popularity among users.
Top Use-Cases of Blockchain Applications in the Insurance Industry
Insurance fraud is a significant concern, as it can cost families $400-700 per year in extra premiums. According to an FBI report, non-health insurance fraud in the US is estimated to be around $40 billion per year.
Fortunately, blockchain insurance claims can help insurers eliminate common insurance fraud and prevent such losses.
It would become immutable by utilizing a blockchain-based ledger for insurance claims shared among various insurance companies. Further, rendering it unalterable ultimately helps to reduce fraudulent activities. Additionally, employing blockchain technology gives insurers access to the shared blockchain ledger. This facilitates quick identification of paid claims and suspicious behavior, utilizing historical claims information.
Currently, numerous insurers use publicly available data and information from private companies to detect fraudulent activities. However, such data sets are frequently inadequate due to the constraints and limitations enforced by government laws.
So, what can resolve this issue?
Combining blockchain technology with cryptography can enable the secure sharing of claims data among insurance companies. In turn, it’s safeguarding sensitive, personally identifiable information from being disclosed.
Insurance companies face several challenges when collecting data. The primary reason is customers’ reluctance to disclose sensitive information. This is not unexpected, as customers are concerned about safeguarding their confidential data.
Now, blockchain can ease the following scenarios. How?
This cutting-edge technology provides a foolproof way to safeguard personal information. It also provides a greater control over it. This technology lets clients securely share their sensitive data, ensuring optimal privacy protection.
Acquiring data from a Know Your Customer (KYC) data service is an effortless task that clients can easily perform, as they can share their identity information on a smart contract basis. Furthermore, this technology enables the reuse of such data for secure verification purposes in other companies.
BCG reports that placing insurance policies on a blockchain platform as smart contracts can significantly enhance the efficiency of Property & Casualty (P&C) insurance. It leads them to annual savings of over $200 billion in operating costs for insurers.
Now, that’s huge!
Suppose you have a car accident caused by another driver. After that, you file a claim with your insurance company to recover your losses. The insurance company then begins investigating the claim, trying to recover the money from the other driver’s insurance company.
However, the other insurance company has its claim processes, leading to redundant work, potential human error, and delays in processing the claim. This entire process can be time-consuming, resulting in delayed payments.
In contrast, if insurance claims were placed on a blockchain, various parties could access the same shared data, such as insurers, reinsurers, brokers, and others. It leads to faster and more efficient processing of claims.
Smart contracts on a blockchain platform, acting as insurance policies, can automatically execute pre-programmed claims processing actions. Further, it will automate information transfers between different parties. This would streamline the claims process and facilitate seamless payments to policyholders. With all parties having access to the same information, the likelihood of disputes would be significantly reduced.
The healthcare insurance industry can leverage blockchain, enabling faster processing of health insurance claims. The current healthcare system is burdened by privacy laws, making sharing patient data among hospitals and insurance companies time-consuming. Additionally, a lack of data can result in claim denials.
However, using encrypted blockchain records, both parties can securely access patients’ medical data without compromising confidentiality. The blockchain offers a synchronized database of patient data, resulting in significant cost savings for the healthcare industry.
Moreover, patient privacy is secured using cryptographic signatures for each medical record on the blockchain. Any attempt to alter a patient’s medical records stored on the blockchain would create an audit trail, making it impossible to change without detection.
The implementation of technology in auto insurance is another area that has the potential to elevate payouts to the next level.
In the event of a car accident, blockchain technology can enable both parties involved to access the necessary information promptly. As a result, the client can expect an immediate payout, while the insurer can verify that a licensed service provider has repaired the car.
Data sharing among insurers and reinsurance companies can be complicated and time-consuming. It involves a lot of duplicate manual work. However, adopting blockchain technology can streamline processes and improve information flows, benefitting insurers and reinsurers.
Reinsurance companies offer insurance to insurance companies, helping them avoid bankruptcy in the event of multiple claims occurring simultaneously, such as during a hurricane or earthquake.
One of the primary challenges with the reinsurance process is that it is inefficient, lengthy, and often relies on one-off contracts. Insurance companies typically engage multiple reinsurers for the same risk, leading to data sharing among numerous companies to settle claims.
By implementing a shared blockchain ledger, reinsurers, and insurers can simultaneously access data related to policies, premiums, and losses, eliminating the need for reconciliation and reducing time and costs. Furthermore, reinsurers can automate claims processing and settlement, further improving efficiency and reducing costs for all parties involved.
Few Examples of Blockchain in the Insurance Industry
The potential of blockchain technology in the insurance industry is vast, as evidenced by some impressive statistics.
“Experts predict that blockchain will be widely adopted by 2023 and could generate up to $3.1 trillion in new business value by 2030, according to Gartner.”
These estimates demonstrate that investing time and resources in blockchain technology is worthwhile. Moreover, the insurance industry is already experiencing a surge of startups and platforms that utilize blockchain to offer significant benefits. In the following section, we will explore some of the most compelling examples.
In 2018, Fidentiax introduced its digital ledger product, ISLEY, for insurance policies, creating a blockchain market for trading insurance policies. This product provides support for policyholders, who are referred to as “insurance buddies,” by enabling them to store, view, and receive alerts about their insurance portfolios. Additionally, users can share their portfolios with designated loved ones through the ledger, which can help facilitate beneficiary payouts in the event of the policyholder’s death.
Lemonade is an insurance provider for renters and homeowners that utilizes a combination of artificial intelligence (AI) and distributed ledger technology (DLT). The Lemonade protocol is unique in that it charges a fixed fee from each participant each month and allocates the remainder towards future claims. To eliminate bias from the claims process, Lemonade groups customers based on the charity they select when signing up. Additionally, Lemonade uses AI-based algorithms to assess the legitimacy of claims.
Blockchain technology has the potential to revolutionize the insurance industry, with numerous interesting use cases that can transform how physical assets are managed, tracked, and insured digitally.
With significant benefits such as improved cost efficiency, reduced risk, and enhanced security, insurance companies need to leverage blockchain technology to stay ahead of the curve.
If you’re looking to create robust blockchain applications for your insurance business and develop cutting-edge solutions, our Blockchain developers help.
Agile soft systems, is an award-winning custom software development company in USA with extensive experience in emerging technologies such as blockchain, AI, AR, and VR development. Contact us at +1(510) 679-6791 or write to us at [email protected] today to learn more about how we can assist you in building the next generation of insurance solutions.