Disintermediation through Blockchain

Prior to the advent of the internet, the government and various other companies had to verify and record the personal data of users for all purposes and the customers had to pay for the services offered by various companies. We at Blocksmiths.io believe that efficiency is the key for financial success and have built products and applications which would help insurance companies gain more profits from their business.

Third-party intermediation

Disintermediation is the removal of intermediaries from transactions.

In today’s world, the most basic example of a ‘middleman’ would be gateways such as Visa and Mastercard. When a user pays money to a vendor and makes a transaction, the amount to be paid to the merchant is deducted from a user’s account along with an extra amount remunerated as transaction fees which goes to the payment gateway company.

Similarly, payment processing is an essential part of the insurance industry, especially when it comes to gathering payments such as premiums, commissions and the claims payments from the customers, agents/ brokers, and vendors. Insurance companies have taken various measures to ensure quicker payment processing through modes such as:

· Mobile payment

· Mobile wallet

· Debit cards

· Electronic funds transfer (EFT) etc.

While certain new methods have made it simpler to process payments, it is still an uphill task to clear the expenses, service fees and clearance times of intermediaries like banks. Such problems are more note-worthy in commercial insurance transactions where overheads are in hundreds of thousands of dollars or when the payments involve multiple financial and judiciary bodies across various geographies and the expenditures need to be settled in the local currency.

Drawbacks with involving third-party intermediaries

Now, if there are third-party intermediaries involved for every transaction, the customers need to pay enormous amounts of transaction fees. Soaring prices of premiums will soon dissatisfy customers and might lead to a lot of customers abandoning an insurance company.

There is no direct exchange of data or funds between the insurer and the insured. Moreover, for each policy renewal/policy termination/KYC or accounting process/claim settlement, the customers need to collect proofs to submit along with their data from various sources to support their claim. For example, when a client wishes to claim insurance money for a flight delay, he/she needs to collect data from the airport authorities, airline executives etc. as valid proof that his/her claim is legitimate. The data collection is repeated for each update/renewal of policies and goes to multiple departments and on multiple mandatory processes. Because of the redundant tasks, the entire cost considerably rises and both parties — the insured and the insurer — lose money due to the resources spent to pay for the services offered by the third-party intermediaries.

Common problems and Blockchain Proposed Solutions

Blockchain has a decentralised structure which brings multiple entities to one common platform and makes the transfer of data and information direct between the involved parties.

Blockchain can help eliminate the need for third-party intermediaries and incorporating Blockchain with the current execution process will primarily reduce:

The extra costs incurred by the insurance companies and the customers can be brought down drastically: The customers and insurance companies will no longer need to pay a third party for the safekeeping of their data or for its verification. The total amount of resources spent on the successful completion of a task related to insurance can be easily brought down.

How will Blockchain help?
 
Blockchain offers the feature of immutability i.e. the data once stored on a Blockchain cannot be edited by anyone. Insurance companies will benefit greatly with Private/permissioned Blockchains integrated with their infrastructure as the data of the customers can be kept safe and the insured will no longer need to pay third-party intermediaries for their services.

The risk of third parties providing incorrect data because of human errors: Every time users are required to provide their data to insurance companies, there’s always some risk surrounding the integrity of the data provided since the data entry is done manually for each user request. We cannot eliminate the possibility of human errors while uploading data.

How will Blockchain help?
 
By implementing Blockchain, the users will only need to upload their data once onto the Blockchain. Insurance companies can reduce the chances of human errors in repetitive data collection processes by referencing to the previously uploaded and verified version of a user’s data. 
 
· Friction between the insurance companies and their customers: With most insurance companies, there is a lot of friction when it comes to the completion of tasks as there is very little direct communication between the insured and the insurer.

How will Blockchain help?
 
If a Blockchain were to be used, the communication between the customers and insurance companies can be made efficient as everyone would be brought to one common platform and we can ensure frictionless execution of different tasks thereby guaranteeing the insured and the insurer a seamless experience.

The overall turnaround time for various processes: The total time taken for various processes is very high as the communication between the several departments of an insurance company is not very efficient/transparent. Moreover, it is difficult to keep track of the completion of a task as there is no way to monitor the progress.

How will Blockchain help?
 
Private Blockchains can help make the sharing of data between customers and insurance companies transparent and direct. We can also track the progress of a task and make the communication between multiple departments of an insurance company very efficient thereby reducing the turnaround time for various processes. Considering the demand for private Blockchains such as Monax, Hyperledger etc. we at Blocksmiths.io have built our own prototype private Blockchain for the entire Blockchain developer community.

The next big thing — Blockchain

Blockchain has a decentralised structure which means that there is no supreme central authority in control of the data. Further, data once stored on a Blockchain cannot be tampered with thus ensuring data security and integrity. Also, Blockchain will successfully eliminate the need for third party interference and involvement in the insurance process.

With the money saved from the removal of third party intermediaries, insurance companies can actually offer appealing discounts to customers and invest in other opportunities to expand their business. The insurer will be able to guarantee better customer satisfaction and will be better accountable to their customers.

If any insurance company personnel or consultant would like to discuss more about blockchain and its various applications in the insurance industry then kindly get in touch with me at harmeet@blocksmiths.io