The top 2 ways in which blockchain will disrupt the insurance industry
The insurance industry is one of the oldest in the world and has relatively not been impacted by any major technological advancements. However, with changing times, this cannot be the case anymore. With most of the big industries adopting blockchain technology to optimize their operations, the insurance industry cannot be left far behind.
According to a study conducted by PWC, 22% of insurance, and asset and wealth management businesses are at risk to disruption by FinTechs. The survey revealed that the insurance sector would be the most disrupted.
Insurance companies in the world today, are looking for ways to streamline their operations, become cost effective, and build greater trust in a new digital ecosystem. One of the ways they are doing that is by using blockchain technology.
A study conducted by Cognizant showed that 86% of the respondents said that blockchain is important, while 54% said it will transform the industry.
When asked to indicate the expected benefits of blockchain in insurance, the response was as follows:
We will focus on the top 2 benefits of blockchain in insurance:
- Faster claims settlement
The distributed ledger in blockchain can enable the insurer and other third parties to access and update information like claim forms, policy reports, review reports and evidence with ease.
Blockchain systems promote communication and coordination among various parties, thus streamlining claims submission, reducing loss and increasing customer satisfaction.
In a similar manner, the combination of satellite imagery, sensor data, mobile technology, and blockchain can be used to enable claims payment in the case of natural disasters in remote areas.
A sample use case of a death claim would work like this: A blockchain solution, would create a network of all the participants such as insurance companies, hospitals, funeral homes, govt department of health and finally the individual beneficiary. For deaths that occur in hospitals, the information about the deceased would be entered into the hospital’s IT systems, which would be integrated with the blockchain network. Insurers are then notified immediately for a match. The insurer then processes the claims automatically and disburse the required amount to the beneficiary.
2. Fraud Reduction
According to the National Health Care Anti-Fraud Association, healthcare fraud costs the country an estimated $68 billion annually (3% of the $2.26 trillion in health care spending).
Since blockchain provides a public ledger that is shared across multiple parties, it helps greatly in reducing errors and detecting fraud. The decentralized repository automatically verifies the authenticity of customers and transactions. This will help insurers identify duplicate transactions. Blockchain can also help to eliminate the inefficiencies, gaps and errors due to poor data quality from front and back offices in the case of specialty insurance and reinsurance where the insurer is not in touch with the end client. P&C insurers who seek clear visibility to their risk exposures and reinsurance contracts can gain it through blockchain. Even Medicare fraud can be greatly reduced with the use of blockchain.
Insurance companies should begin to identify top, high impact areas where blockchain can help significantly, and start testing and proving new models. For most insurers, a simple, internally focused use case will be a good start. Streamlining internal processes like monthly closes may also make sense. Once the internal viability is tested, insurers can then test the model out on a more customer-facing front, through the development of requisite legal, regulatory, and tax frameworks.