Can Blockchain Technology Revolutionize the Insurance Industry?

The insurance industry suffers from a lack of transparency, low inefficiency, and slow innovation. This has caused continuing issues in the sector.

Consider what’s happening now:

• Insurance fraud, excluding healthcare, amounts to $40 billion per year in the United States alone, based on data from the FBI. These expenses are said to cost the average family between $400 and $700 more annually in premiums
• Insurance claims take a long time to process. For instance, in California, USA, insurers have 15 days to acknowledge a claim, 40 days to deny or accept the claim, and an additional 30 days to make payment. That’s 85 days — nearly three whole months!
• Given such issues, the relationship between consumers and insurance companies is far from good. According to a Harris Poll, most consumers don’t trust insurers and are less engaged with them than they are with banks

Clearly, there are big problems to address. Fortunately, new technologies, like IoT and artificial intelligence (AI), have arrived to improve the industry.

And another innovation — blockchain technology — may just be the major solution the insurance industry has been waiting for.

Why blockchain technology is the answer

Traditionally, policyholders pay insurers, who then do three things with your money:

1. They pool the money to pay claims.
2. They cover expenses involved with providing insurance.
3. They invest the money across a range of asset classes, including bonds, real estate, stocks, commodities, and more.
4. What the blockchain can bring to these insurance processes is a layer of transparency, as Mphasis, an IT services company, notes. There hasn’t been any automated, enterprise-level solution for this level of transparency until now.

The blockchain would function as a shared, decentralized ledger where all participants — from insurers to policyholders — have a real-time and complete view.

This is precisely why weary insurance executives are being advised to look beyond the hype of Bitcoin and see the underlying potential of the blockchain. As a leading consulting firm attests in a report, “executives skeptical of the hype should recognize how blockchain’s enablement of increased trust and transparency speaks to the heart of the insurance business.”

What blockchain technology can do for the insurance industry

What, specifically, could the blockchain do to revolutionize insurance processes? Consider these examples:

• Improved claims processing: Smart contacts can be used to create self-executing agreements. Bound by code, the smart contract would automatically trigger the verification of a claim right after an incident occurs.
• Less fraud: A blockchain network can only approve a claim if certain conditions are met, eliminating the potential for fraud. When it comes to theft and counterfeiting, manufacturers, retailers, customers, and insurers could leverage the blockchain’s ability to verify the authenticity of products and eliminate the possibility for such losses to occur.
• Better backend operations: Considering all information is posted on a shared ledger, not only all participants clearly view all relevant information, the potential for duplicate data is eliminated. Additionally, this removes hurdles associated when parties have to share or track down data. It also streamlines reinsurance processes, as each party has to re-enter data currently.
• Lower pricing: By reducing fraud and enhancing operational efficiencies, premiums can be reduced while insurers retain profits. With big data technologies, such as IoT and predictive analytics, the blockchain-powered ledger can gain automated access to valuable data points and insights. This will enable the creation of better, more dynamic pricing models that benefit both clients and insurers.
• Product innovation: According to PwC research, 67% of CEOs in the insurance industry see creativity and innovation as very important to their organizations. Blockchain technology could unleash such innovation companies chase in the industry. For example, to better assess risk in the automotive industry, a policyholder’s driving habits can be tracked using IoT and then stored on the blockchain. Insurers can use predictive models to create an accurate plan for the customer.
• More customer privacy: Insurance companies aren’t immune to hacks, which have hit major corporations. Since the blockchain is a distributed system across millions of computers, and therefore not centralized, it’s time-consuming, difficult, and expensive to hack. Moreover, customers gain more control over their information. As McKinsey states, “personal data does not need to be stored on the blockchain; it remains on the user’s personal device. Only its verification, e.g., through a doctor, and related transactions (e.g., an examination that has taken place on a certain date) are registered in the blockchain.”

Without a doubt, blockchain technology presents a groundbreaking opportunity for the insurance industry. It has the potential to deliver a level of transparency, efficiency, and security the industry couldn’t even have dreamed of a few years ago.

Enter Chainsure — the blockchain-based enterprise solution for insurance

Experts approximate blockchain technology is where the internet was in 1996. So, it’s still early.

Thankfully, progress is being made quickly. Chainsure, a blockchain-based solution jointly envisioned and being developed by Loyakk and Mphasis, represents an actual way for insurers to combine blockchain technology with enterprise capabilities.

For insurance companies, Chainsure, the blockchain-powered enterprise solution, can benefit them in the following ways:

• Faster client onboarding with the clients in greater control: Insurers don’t have to collect and manually enter policyholder information or KYC data. That information is verified, secured, and registered on the blockchain already. Customers have control over their data and privacy because it stays on their personal device, which is what’s used for onboarding and they decide who gets access to their data.
• Smart underwriting and policy administration: Data from third-party sources, such as the DMV and IoT devices, can aid the underwriting process. The verifiable and immutable data can be utilized to calculate premiums and formulate policy terms and conditions. Once the deal is signed, it’s implemented via smart contract, which can self-execute a claim when it has to be processed.
• Enhanced claims processing: Chainsure enables the insurance company and third parties, such as service providers and garages, can quickly access and update relevant information, from police reports to evidence to claim forms. Once all claims data is fully collected, smart contracts, which have been built to self-execute roles within the platform, can automate a large portion of the claims process, from initiation and verification to approval/denial and payment.
• Better claims administration: Since Chainsure connects multiple parties on a decentralized value web, the opportunity for a bad actor to falsify information or make multiple claims for the same incident vanishes. Smart contracts also automate payments based on set conditions in the code, so customers don’t have to wait long for payouts.
• Greater innovation: Chainsure combines lots of data feeds on its value web, ensuring insurers have more opportunities to create better models. For example, weather data and catastrophe risk modeling can be used to build and customize pricing plans so that they’re more accurate and fair.
• Improved regulatory auditing: Insurers can add auditors and regulators as participants on the Chainsure blockchain, making certain they have a clear view of what’s happening. The advantage of such a blockchain system is that, while everyone can have access to internal data, authority to reset or change data can be customized as needed.

Considering all the use cases for blockchain technology and the potential for it to solve many nagging issues in the insurance industry, let’s go back to the original question: Can blockchain technology revolutionize the insurance industry?

The answer is a resounding yes, especially when you consider the capabilities of blockchain-powered enterprise solutions like Chainsure.