In this series, we tackle different potential use cases of Fast Access Blockchain and how we can build a better world through our solutions.
New Applications, New Business Models, New Possibilities
Applications which are an ideal fit for blockchain technology have the following characteristics:
- Involve multiple organizations
- Where trust is key, or trust is presently severely eroded
- Proof is key
- Involve exchange/transfer of assets or value
- Involve data sharing or presently suffers from silo’d data
- Benefit from micro transactions/streaming
- Have opportunities for new business models, products or services
Blockchain is not a one size fits all solution. Underneath all of the hype of how the technology will “disrupt every industry” and “revolutionize the world”, blockchain is not useful for every industry and application. With that being said, the insurance industry is perhaps the area which could stand to benefit from blockchain solutions the most, from both the customer perspective and the cost reduction side for businesses.
The key pain points of the insurance industry that can be addressed by blockchain applications are fraud, fragmented data sources, and manual claims processing, all of which are interrelated.
The Coalition Against Insurance Fraud estimates that fraud costs the insurance industry $80 billion annually in the US, which hurts both insurers and customers. Fragmented data sources and limited data sharing is an underlying cause of this, even though the nature of the insurance business requires data sharing between organizations. These data sharing problems can be due to insurers reluctant to share data that may be used by competitors, privacy regulations or concerns, the lack of a central authority for data management and many disparate sources for data (e.g. government agencies, healthcare organizations, law enforcement, employers).
As a result, claims review and processing is largely manual, often incomplete, and can take a long time. For example, payout of life insurance can take anywhere from 15 days to 6 months depending on the individual circumstances, cause of death and country.
Imagine instead, if all of the cross-organization information required to approve policies and claims were stored on one or more blockchains. The cross- organizational information would be independently verifiable without human intervention, with the customer providing initial permission to the insurer to access this information. This could allow the majority of claims to be checked and processed automatically, saving costs and reducing settlement time.
Further automation may be achieved using smart contracts where justifiable. Having key information available to the insurer on a continuous basis could also mean that it can be audited for “material change in risk” upon policy renewal or continuously by software agents, should the underwriting conditions change and the policy holder fails to inform the insurer.
In the end this can protect the consumer in cases where the failure to disclose changed conditions would have resulted in a denied claim, as most terms and conditions in insurance policies dictate.
Some of the more exciting possibilities made possible by blockchain technology are new business models such as dynamic pricing, P2P insurance, micro-insurance and parametric insurance.
Dynamic pricing for auto insurance, to take an example, might be insurance which is paid for by the minute while the car is on, enabled by smart contract. Other parameters that may be used in the dynamic pricing formula, include GPS location used to correlate with traffic density data or high risk intersections, time of day, or number of passengers. For health insurance, dynamic pricing may be based on data from wearable sensors, or health records from regular medical checkups.
P2P insurance allows groups of individuals to pool their funds and self-insure, spreading their risk and effectively dis-intermediating traditional insurance companies. Micro-insurance is intended for low-income regions and allows people to make small premium payments. This process takes advantage of blockchain technology’s ability to do micro-transactions, and similarly, smart contracts across large numbers of people at low cost.
Parametric insurance is implemented via a smart contract, with the payout amount being determined by parameter, such as cold degree-days for crop insurance, or earthquake magnitude for earthquake insurance. The payout can be immediate and automatic once a predetermined trigger level is reached, and a total loss is not required to receive compensation.
All of these solutions reduce back end inefficiency, lower costs by taking away middlemen, and create a more clear system for consumers to make the best choice when purchasing insurance.
Fast Access Blockchain will be creating insurance applications on top of the FAB network for companies and groups to take advantage of these benefits.
Written By: Eugene Cofie & Ken Tang
