5 real-world applications of Blockchain technology in insurtech
Blockchain technology may solve many problems the insurtech industry faces. It could reduce costs spent on administration and claim processing, make underserved segments more accessible, enable immediately issued contracts, and increase transparency. Potential blockchain applications in the insurance industry are almost infinite. Its usage across the sector can open a whole world of new possibilities. Companies that provide financial & insurance software development services have adopted this technology early on as they see it’s transformative potential.
Let’s discover the top 5 implementations of blockchain in insurtech and the way they are disrupting the sector.
#1 Smart Contracts in Insurtech
Smart contracts are the blockchain-powered technology that apparently has the most potential in insurtech. These are computer programs that verify and execute interactions between parties. They can provide customers and insurers with the possibility to manage claims in a transparent and responsive manner.
With the help of blockchain, the process of agreements registration, verification, and execution has become much easier. Now, claims are automatically enforced by computer protocols without the need for a claims assessor. These contracts and claims are recorded onto a Blockchain and validated by the network, ensuring that only valid claims are paid.
With the increasing efficiency of claims-handling, the customer experience improved greatly. Blockchain eliminates the extended process of document submission and third-party verification. This in turn accelerates the underwriting process and reduces costs.
Smart Contracts are used in many cases where assets are transferred only on meeting certain conditions. Ethereum and Codius are blockchain platforms that help companies incorporate this technology into their solutions. Ethereum already powers a wide range of applications in such areas as Governance, crowdfunding, keyless access, financial derivatives trading using this protocol. Moreover, insurance company Allianz has recently announced its successful launch of a smart contract solution for automation of catastrophe swap transactions.
Source: Deloitte University Press, DUPress.com
#2 Claims Management
According to PwC and Z/Yen, blockchain technology could be used to create a single version of the claim documents that can be reviewed and monitored by underwriters in real time. The blockchain allows all parties involved in a claim to simultaneously manage the process.
Smart contract elements will also allow for the automation of many processes. This will bring many benefits including effectively managing the relationship with a service supplier, enhancement of transparency, increase of flexibility, etc.
Blockchain technology has the potential to reduce costs and time spent on each customer as well as deliver more certainty. This allows insurers and brokers to operate more efficiently. Moreover, there is scope for creating a blockchain that will incorporate all documents created in the claims process and available to all underwriters. This would give underwriters a possibility to process claims without actively participating since they would be able to monitor and review it at any time required. The cost of administration for the claims broker would be reduced as well.
#3 Fraud Detection and Risk Prevention
Fraud is an acute problem for insurance companies since high-value assets can be fraudulently registered as stolen. According to McKinsey, an estimated 5% to 10% of all claims are fraudulent. Moreover, the ABI estimates that insurers invest approximately £200 million each year to identify fraud.
Blockchain has great potential to eliminate error and detect fraud by providing a decentralized digital repository. It may independently verify the veracity of customers, claims, and policies and provide a complete transaction history. This prevents transaction duplication, displaces the roles of a trusted third party, and provides a verifiable public record of all transactions.
In addition, blockchain can store encrypted personal data and a public ledger. Many insurers are already applying it for reducing fraud and liability associated with immediate payments across borders and multiple currencies. Moreover, independent record of all transactions has the potential to stop many types of fraudulent activities.
For instance, insurtech company Everledger uses the blockchain to create a distributed ledger that records transaction history details of diamonds. This ledger allows insurers and potential purchasers to check the history of any individual stone. It also includes information about previous claims that have been made. This helps insurers detect, prevent and counter fraud.
#4 Customer Identity
Brokers, insurers, reinsurers have to meet KYC (Know Your Customer) requirements on all of their counterparties. This includes gathering significant data on a client and verifying their identity, which is a really time-consuming process. PwC and Z/Yen have created a blockchain-based prototype designed to accelerate this process. It keeps records of customer documents and evidence of validation from an issuing authority. Moreover, it gives an ability for the client to maintain control of the records.