Insurance fraud will cause at least $40 billion in damage every year. How will blockchain technology subvert the insurance industry?
【Published by sohu | Editor: sohu】
Insurance has existed for centuries. As early as a thousand years ago, Chinese merchant seafarers concentrated their goods together and used collective funds to pay for the losses caused by the overturning of any individual vessel.
Despite the fact that technology has permanently changed the industry over the past 10 years, in many ways, the trillion-dollar global insurance industry has remained stuck.
Despite the rise of online insurance brokers, many consumers still contact insurance brokers to purchase new policies by phone. Policies are usually dealt with on paper contracts, which means claims and payments are error-prone and often require manual supervision. More complicated is the inherent complexity of insurance, involving consumers, brokers, insurance companies and reinsurers, as well as the main product of insurance — risk.
Each step in this collaborative process represents a potential point of failure in the entire system where information can be lost, the strategy is misunderstood, and the settlement time is extended.
Injecting blockchain technology, this is a secure form of shared record storage.
Although the hype surrounding blockchain technology continues, its true killer app is likely to appear in some of the oldest areas. It has the ability to become a transformative force in industries such as insurance, which requires many different intermediaries to coordinate and cooperate with different incentives.
Of course, achieving this goal is not easy. Insurance companies and start-ups that work with blockchain technology must overcome major regulatory and legal barriers to see subversives like the entire industry. Skeptics point out that blockchain technology faces serious obstacles in an industry that has not even fully embraced cloud computing.
It is still too early to judge whether blockchain technology can overcome legal and regulatory barriers and become the default standard for the entire insurance industry. But the possibilities are endless, and both insurance companies and startups are fully exploring the insurance applications of this technology.
These applications include:
1. Fraud detection and risk prevention: Blockchain technology can help eliminate common sources of fraud in the insurance industry by transferring insurance claims to immutable ledgers.
2. Property and Accidental Injury (P&C) Insurance: Shared ledgers and insurance policies executed through smart contracts can increase the efficiency of property and accident insurance by an order of magnitude.
3. Health insurance: With blockchain technology, medical records can be encrypted and shared among health care providers to improve the interoperability of the health insurance ecosystem.
4. Reinsurance: Blockchain technology can simplify the information and payment process between insurance companies and reinsurers by securing re-insurance contracts for blockchain through smart contracts.
1. Fraud detection and risk prevention
Key points:
Insurance fraud costs more than $40 billion a year and is difficult to detect using standard methods.
Blockchain’s shared ledger technology can drive fraud detection by integrating insurance company claims data.
By promoting better data sharing, blockchain technology can save insurance companies the cost of paying public and subscription data to prevent fraud.
Today’s fraud detection
According to the FBI, the total amount of insurance fraud in the United States (excluding health insurance) is estimated to exceed $40 billion annually.
This is not just a question of insurance companies losing money — insurance fraud costs between $400 and $700 for ordinary American families in the form of premium increases.
The complexity of the modern insurance industry creates a gap in visibility that can be exploited for fraud. The transfer of claims from the insured to the insurance company and the reinsurer is a slow, document-driven process with many activities. This creates opportunities for criminals to make multiple claims for individual losses between different insurance companies, or to enable brokers to sell policies and collect premiums.
Fraud detection using blockchain technology
Blockchain technology can enable insurance companies to better coordinate against fraud.
On distributed ledgers, insurers can record permanent transactions and use fine-grained access controls to protect data security. Storing claim information in a shared ledger helps insurers collaborate and identify suspicious behavior across the ecosystem.
Today, major insurers invest in data collected from public and private companies to better predict and analyze fraud. Public data can be used to identify patterns of fraud in previous transactions but is often inconsistent because it is difficult to share sensitive information between different organizations. Restrictions around sharing personally identifiable information (such as name, address, date of birth, etc.) undermine the development of fraud prevention across the industry.
Introducing blockchain technology to stop fraud will require a high degree of coordination between insurance companies, but in the long run it can bring huge benefits.
Blockchain-based anti-fraud behavior can begin by sharing fraudulent claims to help identify patterns of bad behavior. This will bring three main benefits to the insurance company:
Eliminate duplicate bookings or multiple claims for the same incident
Establish ownership and reduce counterfeiting through digital certificates
For example, in the case of unlicensed brokers selling insurance and collecting insurance premiums, reducing the transfer of premiums
The reduction in insurance fraud directly leads to an increase in the profit margin of insurance companies, thereby reducing consumer premiums.
Blockchain use case: Etherisc
Blockchain technology startup Etherisc has established an insurance product that supports blockchain, which began public testing in October 2017. Its cryptocurrency-based flight delay program allows passengers to purchase flight insurance in cryptocurrency or fiat currency (such as US dollars and euros) and then the claim is automatically paid after the eligible accident. Other products under development include Hurricane Insurance, Encrypted Wallet Insurance and Crop Insurance.
Etherisc’s products are supported by smart contracts. A contract is a written agreement between two or more parties that can be enforced by law; a smart contract is an agreement between two or more parties residing on a blockchain that can be enforced by code.
Etherisc smart contracts can use multiple “oracles” or data sources to independently validate claims. For example, when dealing with crop insurance claims, Etherisc may compare satellite imagery, weather station data, and drone video to photos provided by the insured. This automated review can detect fraudulent claims before they are manually reviewed.
However, Etherisc is still in its early stages (at this time, only its flight delays can get insurance licenses), but examples show the blockchain as a broader use case for fraud prevention tools.
Insurance fraud is a problem in the industry, leading to higher premiums and worse consumer coverage. Combating fraud is one of the most compelling use cases for blockchain technology, providing insurance companies and insureds with a permanent audit trail that can be used to evaluate claims.
But insurance audit trails not only help prevent fraud. It brings automation and efficiency to the claims processing system, and we see the company experimenting in the area of property and casualty insurance.
2. Property and Accident Insurance (P&C)
Key points:
P&C claims data is spread across multiple locations controlled by different parties, making claims resolution a challenge.
Blockchain technology enables automated, real-time data collection and analysis that may make certain types of P&C claims processes three times faster and less expensive than current.
Automated “smart contracts” can greatly speed up claims processing and spending, saving insurers more than $200 billion annually.
Property and Casualty Insurance (P&C) insurance is a big business, accounting for 48% of all US premiums in 2017, or a total of $576 billion.
One of the biggest challenges facing the industry is collecting the data needed to evaluate and process claims. You can treat insurance as a contract that stipulates the insurance premium paid by the insurer and the insurance company’s liability for damages. However, “damage compensation” may be subjective, so insurance is about whether the conditions for verifying each policy are met.
Today’s P&C insurance
Dealing with P&C claims is an error-prone process that requires extensive manual data entry and coordination between different parties.
For example, a car accident has happened recently, and you think that the fault lies with another driver. In order to compensate for the loss, you choose to file a claim with the insurance company. Your insurance company needs to check the claim and then take back the claim for the trouble-shooting insurance company — the company’s claims processing system and process are completely different.
That’s why property and casualty insurance is a compelling use case for blockchain technology that can change the way digital assets are managed, tracked, and insured.
P&C insurance on the blockchain
By allowing policyholders and insurers to digitally track and manage physical assets, blockchain technology can compile business rules and automate claims processing through smart contracts while providing permanent audit trails.
Smart contracts using blockchain technology can turn paper contracts into programmable code that helps automate claims processing and calculate insurance liability for all relevant participants.
For example, when submitting a claim to an insurance company, the smart contract can automatically confirm the coverage and trigger a request for manual review of the loss that meets certain criteria.
According to data from Boston Consulting, smart contracts can save P&C insurance companies more than $200 million in annual operating costs and reduce operating ratios by 5 to 13 percentage points.
For car insurance, smart contracts can be connected to sensors on the vehicle to automatically alert the insurance company when a collision occurs. The smart contract can then convene the medical team and the trailer service, initiate the claim process and notify the insured that assistance is in progress. With the advent of new information such as police reports and car accident photos, smart contracts can attach them to claims, thereby facilitating faster payment processes with minimal human intervention.
Blockchain use case: Insurwave
Incorporating entities such as Ernst & Young, Guardtime, APMøller-Maersk, Microsoft and ACORD, in 2018 launched the blockchain-driven hull insurance platform Insurwave.
The platform is now in commercial use and is expected to handle the risk of more than 1,000 merchant ships and 500,000 automated transactions in the first 12 months of its operations. The group plans to extend its platform to other types of commercial insurance in the future, including freight, aviation and logistics.
The Insurwave platform provides insurance companies and insureds with real-time information on ship location, condition and safety conditions. When a ship enters a high-risk area (such as a war zone), the program detects this and incorporates it into underwriting and pricing calculations.
As stated by enterprise blockchain company R3, setting premiums for marine insurance is “very complicated”. Products like Insurwave are designed to mitigate this complexity by building an audit trail that cannot be changed.
Having a reliable information store on vessels can speed up the process of making and evaluating claims. It can also help increase access to data for ship owners and insurance agents.
Information such as vessel movements, weather conditions and location can help insurers more easily quantify the risks they bear and help ship owners better assess what type of insurance they need.
According to Lars Henneberg, APMøller-Maersk A/S Risk and Insurance Director Lars Henneberg, blockchain technology has begun to successfully make marine insurance more efficient.
“There are about 350 self-contained container ships around the world, and marine insurance provides us with a lot of resources. Transferring it to this platform will help us automate manual processes and alleviate a series of inefficiencies and friction costs, just like we used to trade marine insurance. That way.”
3. Health insurance
Key points:
The need to keep patients confidential means that although the current medical record market is $28 billion, medical service providers often do not have access to the patient’s complete medical record.
Lack of data can result in the rejection of insurance claims, which causes the hospital to lose $262 billion annually and is considered an important factor in rising medical costs.
Blockchain technology encrypts patient information and facilitates message delivery while still protecting patient privacy.
A patient usually sees many doctors and experts during his lifetime. Because health care involves many aspects, it is difficult to share and coordinate sensitive medical data between them.
Today’s health care
The health insurance industry suffers from large and inefficient ecosystems such as suppliers, insurance companies and patients. Medical records are isolated among different providers and insurers, and repeated and erroneous records in different organizations can result in expensive administrative overhead and unnecessary procedures for patients.
Suppose you have a broken leg and are looking at an orthopedic surgeon. The secretary of the surgeon’s office must painstakingly request documents from different providers, obtain prior surgical authorization from your insurance company, and file a claim. After the operation, your physiotherapist needs the fracture information provided by the hospital and the medical information provided by your attending doctor, and must manually request documents from each doctor. Each link represents a possible point of failure.
The medical industry is currently having difficulty sharing data and cooperation for two main reasons:
First, the back-end infrastructure of medical records is outdated.
By 2022, the market for electronic medical record management software providers is expected to reach nearly $40 billion. Different providers and insurance companies rely on different standards and formats to store patient data. Medical data must usually be coordinated between hospitals, insurance companies, clinics and pharmacies. A study wrote:
“Medical has entered the digital age through the back door awkwardly: a large number of expensive electronic medical record systems have been implemented, and there is little careful and planned consideration of their impact on the entire healthcare system, including education, practice, workflow and research. ”
Second, strict privacy laws lead to data silos within the organization.
In the United States, the Health Insurance Portability and Accountability Act (HIPAA) exists to help protect private patient data, but the downside is that it makes it difficult to coordinate patient care for various health care providers and insurance companies.
The cost impact on this is terrible. In the United States, total health care spending is 1.5 times that of Switzerland, Canada, Germany, and France. The United States only spends 8% of its health care expenditure on management needs, mainly because of poor communication between medical institutions and doctors, redundant and inefficient work, and excessive paperwork.
The cost figures associated with billing and insurance are even more significant. A study by the American Medical Association Research Journal found that bills and insurance costs accounted for an average of more than 14% of doctors’ income, which can be as high as 25% when considering emergency room visits.
In 2016, the cost of refusing insurance claims in US hospitals increased by another $262 billion. Rejection can occur in any situation, from obtaining the appropriate program authorization, or incorrect data entry, and so on. Although the hospital recovered about 63% of the insurance company’s initial refusal to pay, ensuring that the payment itself is a costly process and the management costs are high.
Healthcare using blockchain technology
Encrypted secure blockchains maintain patient privacy while creating an industry-wide, synchronized healthcare database that saves billions of dollars annually.
Blockchain technology can return control of medical data to patients and allow them to share data access rights on a case-by-case basis.
Instead of forcing insurers and providers to coordinate patient data across different databases, the blockchain medical record system can store cryptographic signatures for each record on a distributed ledger. The signature encrypts and time-stamps the contents of each document, and does not actually store any sensitive information on the blockchain.
Whenever a document is changed, it is recorded in a shared ledger, allowing insurance companies and providers to review medical information across organizations. At the same time, the blockchain can enable granular permissions settings to comply with regulations while allowing data to be anonymized and shared for research.
Blockchain use case: MedRec
MedRec is a decentralized content management system for medical records at MIT. Instead of storing medical data directly on the medical data link, it indexes the medical records on the blockchain, allowing licensed providers to access the records. This helps ensure patient privacy while creating an audit trail to find and verify patient information on the blockchain.
Although MedRec is still an academic project in the proof of concept phase, it provides a useful model for understanding how to protect medical data through blockchain technology.
It is important to remember that blockchain technology is not a panacea for the health insurance industry. Today’s blockchain companies need to deal with major regulatory and compliance barriers in the insurance industry to be successful.
4.Reinsurance
Key points:
When a large number of claims enter immediately, for example during a natural disaster, reinsurance can protect the insurance company.
Blockchain technology can reduce risk by automating processes to facilitate information sharing and cost reduction, ultimately saving reinsurers up to $1 billion.
Insurance exists to help people mitigate risks and reduce accidents, from natural disasters to health problems. This may be a very risky proposition, especially in the case of major disasters such as hurricanes or wildfires.
This is the source of reinsurance: insurance companies can buy insurance from reinsurers to protect themselves during a disaster.
Today’s reinsurance
Reinsurers provide insurance companies with inefficient systems through one-off contracts and manual processes. Depending on the type of reinsurance purchased, it can cover the risk ratio of the insurer for a specified period of time, or cover specific risks such as earthquakes or hurricanes.
The current reinsurance process is complex and extremely inefficient. With temporary reinsurance, each risk in the contract needs to be covered separately, and the contract usually requires a three-month dispute before the parties sign it. Insurance companies typically hire multiple reinsurers, which means that data must be exchanged between parties to process claims. Different data standards between agencies often lead to different interpretations of how contracts are implemented.
Reinsurance using blockchain technology
Blockchain technology has the potential to subvert the current reinsurance process by simplifying the flow of information between insurance companies and reinsurers on shared ledgers.
Using blockchain technology, insurers and reinsurers’ computer systems can have detailed transactions on premiums and losses at the same time, eliminating the need to check the books between agencies for individual claims.
By sharing data on immutable ledgers, reinsurers can better allocate funds for almost real-time claims, enabling them to process and settle claims faster, without relying on major insurers to process data for each claim.
PricewaterhouseCoopers estimates that by improving operational efficiency, the blockchain can save the entire reinsurance industry by up to $10 billion.
This may gradually reduce consumer premiums — it is estimated that reinsurance accounts for 5% to 10% of existing premiums.
Blockchain use case: B3i
B3i is a consortium established in October 2016 by a number of well-known companies in the insurance and reinsurance industry to explore blockchain technology. Members include AIG, Allianz, Aegon and Swiss Re.
In 2017, B3i launched a prototype of a smart contract management system for the Property Cat XOL contract, a catastrophe insurance reinsurance. Each reinsurance contract on the platform is written on a smart contract with an executable code on the same shared infrastructure.
When an event such as a hurricane or earthquake occurs, the smart contract evaluates the participant’s data source and automatically calculates compensation for the affected party.
B3i’s pilot program ended in September 2018 after testing and receiving feedback from 40 companies, and plans to begin implementation in early 2019.
The use of blockchain technology to implement reinsurance policies can help reinsurers allocate funds and underwrite insurance policies more effectively, bringing greater stability to the insurance industry. Reinsurers can directly query the blockchain to provide insurance, rather than relying on major insurers to obtain loss data.
Towards the blockchain-driven insurance industry
Although blockchain technology is still in its infancy, there are many promising use cases and applications throughout the insurance industry. Large insurance companies such as Allianz and Swiss Re, as well as small blockchain technology startups, are using this solution.
Despite the great interest in blockchain technology, there are still many issues to solve before it has a major impact on the insurance industry.
From an industry perspective, insurers need to adjust around the standards and processes in blockchain technology. While blockchain technology can provide insurance companies with better tools for collaboration and data sharing, insurers themselves must be willing to cooperate with each other.
The technology itself must also be further developed. In the public blockchain, everyone has access to every transaction on the ledger, but for privacy and security reasons, this is not feasible for the insurance industry. The private, licensed blockchain is still actively developing.
Finally, the insurance industry is highly regulated to protect consumers from malpractice, and insurance companies do not take too much risk and bankruptcy. The legal and regulatory framework for insurance needs to evolve and provide clear guidance on the success of blockchain technolog
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