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 revolutionizing the sector.
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
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.
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.
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.
All documents on the blockchain are encrypted with only the client having the keys. Clients can provide companies with an access for a limited time when required. As a result, this will resolve a set of regulatory issues concerning privacy and data protection. The client could then present the blockchain with an appropriate subset of keys to the next institution with which they want to do business. This institution would be able to rely on the validation done by the bureau without delay. The overall effect would be aimed at reduction of the costs and time spent on KYC within the industry.
Blockchain technology adds a new real-time ability for security professionals. It focuses on the integrity of the digital assets that comprise a network and the configuration of data points, switches, routers, etc. for real-time verification of the state of the network.
Blockchain-based cyber resilience
Source: ‘Blockchain technology as a platform for digitization’ report by EY
This means policy wordings on cyber solutions will address the blockchain standard as a guarantee in a similar manner to non-life insurance policies for physical security.
For instance, an insurtech company BitGO uses blockchain with advanced cyber coverage. Bitcoin wallet service has partnered with BitGO to cover all its users up to the US $250,000 for theft claims. Furthermore, Coinbase, one of the world’s largest Bitcoin wallet and exchange companies, is insured against employee theft and hacking. Other Bitcoin services such as Circle, Xapo, BTC Delta are known to have specific aspects of their technologies covered by cyber insurance.
The analysis of the industry is reviewing the exposures derived from traditional cyber policies, which span property and liability contracts. Moreover, a new wave of investment in product development is expected. It will be adjusted to deal with measurable exposures to digitally-enabled or cyber risk.
Overall, the use of blockchain in insurtech can lead to greater efficiency for insurers and financial services providers. It may significantly increase transparency between market participants and minimize the need for intermediaries. Blockchain technology is already being used for fraud detection, risk management, and claims-handling. This results in a faster settlement, eliminate paperwork and provide easier, improved data access to all parties. So the introduction of blockchain in insurtech transformed the relationship between regulators and regulated entities by reducing frictions and improving outcomes.