How blockchain will revolutionize the insurance industry — I
By Danilo Falco
COO & Systems Manager at 4CADIA Factory
The insurance industry is today one of the most centralized, protected and conservative in the world. Part of this is due to the very nature of the business, which deals with risks on a much larger scale than most of the market. In a way, this has meant that the business model has developed relatively little in recent decades.
On the other hand, the industry today is dealing with the boom of FinTechs and InsurTechs, which are offering more dynamic and attractive services to the general public. According to the Global Fintech survey, 22% of insurance and asset management businesses are expected to be affected by disruptive industry innovations in the coming years. Investment in Startapus InsurTech reached more than US$ 3 billion in 2018, almost double the $1.65 billion invested in 2017, according to data from the FinTech Global database.
In other words, companies in the sector have already understood that they need to innovate and the search for blockchain solutions has attracted the attention of many industry leaders, who have already recognized the potential of the technology.
In this series of articles, I intend to explore the potential of blockchain use in this sector and talk a little about existing initiatives.
Why blockchain
Blockchain technology is based on the distributed ledger principle, in a decentralized network and protected by end-to-end encryption, which eliminates the need for intermediaries. In the insurance industry, this means that a blockchain operates with copies of the ledger stored in various nodes of the network, which allows any agent, insurer, broker, or underwriter to access or update the database in real time. All transactions recorded on the network are verified and encrypted, while all changes to the records are published as additions to the original data.
The practical applications are legion. With the help of blockchain, encrypted medical records can be shared between hospitals and insurance companies, crossing local and international borders. Thus, duplicate and erroneous records can be cut, reducing claim processing time, claim denials, and checkups.
According to Accenture Technology Vision 2019 research, more than 80% of insurance companies said they have adopted or are planning to adopt blocking chain technology. It is known that many of these projects are taking a long time to approve the concept, which has led many companies to bet on alliances to enable solutions such as the Blockchain Insurance Industry Initiative (B3i). These alliances or consortiums are working on the development of platforms based on making possible some very interesting use cases.
Fraud prevention
Preventing fraud is one of the industry’s biggest concerns. According to the FBI, the total cost of insurance fraud in the U.S., excluding health insurance, is estimated at over $40 billion per year. For American families, this has an average cost of $400 to $700 in insurance premiums.
One reason for this is the difficulty in detecting fraudulent activity with regular methods based on the use of publicly available data and private data sources. The modern insurance industry is complex and full of visibility gaps. Claims from policyholders to insurers and from insurers to reinsurers are often shuffled into a slow and bureaucratic process that creates opportunities for criminals. As a result, accumulated data is often fragmented due to legal restrictions that accompany personally identifiable information. As a result, in many situations, multiple claims are filed for a single case, or claims arise from customers who have signed contracts with unlicensed brokers.
Insurance companies often invest a lot of time and money in collecting public domain and private company data to predict and analyze fraudulent activities. This public data is often inconsistent due to barriers to sharing information between different organizations. Restrictions on information exchange such as name, address, date of birth also impose standardization problems.
The use of the blockchain
With the blockchain, data stored on the network is protected by encryption and granular permission settings. All parties can share data and verify its authenticity without revealing sensitive information. A decentralized shared ledger facilitates the consolidation of historical data and helps companies detect suspicious patterns.
In this way, information sharing has the potential to reduce forgery by establishing digital certificates that could not be altered on the network. By breaking it, it helps eliminate duplicate processing of checks. And it reduces premium deviations caused by unlicensed brokers or those who cheat to pocket premiums. Information sharing also allows you to find patterns more quickly, including changing the calculation of risks insurance companies have to deal with today. With all these benefits, it is possible to increase profit margins for insurers and/or enable cheaper premiums for customers.
Is this a distant dream? Not at all. Follow 4Cadia on social networks and find out.
