Imagine a world without mistrust. A world where all agreements, contracts, processes are embedded in digital code, stored in secure databases, and easily shared, sans intermediaries. No fear of fraud, cyber-attacks, security lapses. Too utopian, you think?
With blockchain – hailed as the greatest revolution since the advent of the Internet – all this and more could be a reality someday. Over the last couple of years, we have seen the peer-to-peer network’s huge innovation potential in banking and other financial services. The blockchain market size is expected to reach USD 7,683.7 Million by 2022, with industries such as healthcare, legal services, utilities, public sector, advertising, auditing, supply chain, manufacturing and real estate joining the blockchain bandwagon.
However, the one industry where this technology can be a real game-changer is insurance. From innovating products and services to improving fraud detection capabilities and lowering administrative cost, blockchain offers immense potential for insurance companies, both private and public.
Counting the benefits
Simply put, blockchain is a distributed public ledger that uses cryptography to ensure that transactions between two parties is efficient and secure. For the insurance industry, the technology can help address a range of challenges, when used as a platform to store customer data as well as create smart contracts. Here’s looking at the top five benefits of blockchain in insurance:
- Increased efficiency – Simple steps like using blockchain solutions for ‘know-your-customer’ (KYC) data can increase the efficiency and speed of on-boarding new customers. The technology can help streamline operations, by doing away with duplication of tedious processes.
- Reduced cost – By automating key processes, such as policyholder’s identify and contract validity verification, underwriting, auditable registration of claims and data from third parties, and payouts for claims via a blockchain-based payments infrastructure or smart contracts, the administrative costs are significantly reduced. Insurers could potentially reduce operating and claims costs, says a study, by as much as 13 per cent with smart contracts.
- Improved customer engagement – Thanks to the greater degree of transparency and perceived fairness of tariffs and claims handling, blockchain can facilitate a dynamic insurer-client relationship. Traditionally, lack of trust has played a crucial part in the high levels of underinsurance. Blockchain’s ability to establish trust between entities can help remedy the long-standing problem.
- Better data security – Given that personal and sensitive data does not need to be stored on the blockchain, only its verification (say through a doctor for health insurance) is registered in the network, data security issues are taken care of. Customer-controlled blockchain for identity verification helps quell fears about misuse of personal data.
- Effective fraud detection – According to the US FBI, about 5 to 10 per cent of all insurance claims are fraudulent, costing non-health insurers more than USD 40 billion per year. Blockchain can be used to detect identity fraud, falsified claims, etc.
Making it happen
What insurance companies need today is to modernize fragmented legacy systems to stay relevant in the increasingly digital world. Blockchain’s ability to establish trust between entities can also help solve the interoperability problem better than the existing technologies of today. However, given that blockchain is still in its nascent stage of development – and the insurance industry is not really known for its experimental streak – experts concur that it’s best to start small with blockchain implementation.
For starters, insurance companies can identify a use case and scope out a technology plan. Deloitte’s Center for Health Solutions and Center for Financial Services recently partnered on a crowdsourcing research project to find out how blockchain can be used effectively in the health and life insurance segment. They found that, for starters, blockchain could assist in the creation of an all-encompassing, secure, and interoperable repository of health information. Apart from improving the operational functions and dealings with providers, intermediaries, and policyholders, the technology can also help improve customer experience and enhance product value.
Next comes the proof of concept (POC). It’s important for an enterprise to show that the technology can be implemented in a consistent and compatible way, before taking it up on a bigger scale. In October 2016, the biggest names in the insurance industry – Aegon, Allianz, Munich Re, Swiss Re and Zurich – came together to launch a unique initiative called the Blockchain Insurance Industry Initiative B3i. Their pilot project aimed to achieve a POC for the use of blockchain in insurance.
Once the POC is done, companies can move on to the next stage: Field trial. Insurance companies can look at a limited-production run with customer-facing data, stepping it up gradually to a full-volume rollout.
All said & done
Right now, most insurance companies may not have the infrastructure or expertise to make the most of blockchain. However, it’s pertinent to identify and invest in qualified technology partners to realize blockchain’s full potential as a business transformation opportunity.
As a foundational technology, blockchain has the ability to add value and volume to business. Now is the time for players in the insurance industry to strategize, experiment, and leverage blockchain to create next-generation products and services. Did you know that LenderBot, a micro-insurance solution launched by blockchain startup Stratumn in cooperation with Deloitte, allows users to submit insurance claims through Facebook Messenger?
The technology is evolving quickly, and the learning curve is significant. With blockchain, the wait-and-watch strategy can prove to be risky. So, act now, or regret later.