Blockchain can be leveraged for claims, administration, underwriting, and product development, and today, broad blockchain use cases focus on cost reduction measures. Initial scopes evaluated for insurance companies include utilizing blockchain to automate paying claims. A hybrid of the Internet of Things (IoT) and Artificial Intelligence (AI) will usher in an automatic insurance process, making the insurance industry look futuristic. Another possible blockchain service would be transmitting any digital proof for underwriting, even using electronic health records (EHR).

Blockchain technology promotes transparency, cost savings, faster payouts, efficiency gains, and fraud mitigation in insurance while authorizing data to be communicated in real time between different parties in a relied upon and traceable fashion. Blockchains can also help new insurance procedures to produce more profitable products for the customers. 

Insurance companies serve in a highly competitive climate where retail and corporate consumers anticipate the most satisfactory value for money and exceptional online experience. Blockchain technology symbolizes positive transformation and development in the insurance industry.

With blockchain’s smart contracts and decentralized applications, insurance can be accomplished over blockchain accounts, raising more automation and tamper-proof audit routes. Notably, the low expenditure on smart contracts and lower transaction rates mean that numerous products can be more competitive in piercing the under-insured demands of the developing world.

Why should Insurance companies start their Digital Blockchain roadmap and strategy?

The creation of digital models is incomplete without Blockchain as a layer. Blockchain is built to ease governance and trace data and communication between all stakeholders. A Blockchain smart contract-led platform helps underwriters, third parties, consultants, validators, and customers interact efficiently. 

The insurance sector is human-centric, which leads to inefficiencies in business operations and communication. The initial significance of blockchain in insurance will result from endeavors that cover the enterprise value chain, involving all stakeholders. It could uncover adequate use cases to construct proprietary systems and reduce costs while simultaneously improving the efficiencies of big insurance organizations. 

Most modern insurance companies have clutched to the client-server architecture, which has performed competently for quite a long time. However, it must get enhanced security and efficiency upgrades. Although systems employing this architecture function satisfactorily and serve the requirements of enterprises, one systemic delinquency can impact all operations that depend on the server. Safety practices might be placed, but there are still higher odds that the data can be manipulated in the server unexpectedly or purposefully. 

The primary goal is to diminish or replenish traditional gaps in service and inefficiencies, tagged as’ inherent costs’ of insurance trades – long waiting time, high settlement costs, and unnecessary negotiations on features. 

Blockchain technology solves the following use cases in the insurance domain:

The following are some essential attributes in the insurance domain that Blockchain technology can enrich and help prevent inefficacies.

Fraud detection and prevention

Insurance companies see fraud increase yearly; by analysis, annually, about 5 to 10 percent of all claims are deceitful. Ditching, Double Dipping, and Cash for Crash are some documented scams in vehicle insurance. Identity theft is fraudulently obtaining and abusing another person’s details, another way of enjoying unbefitting benefits. Blockchain can eradicate the boundaries of client-server architecture to contain fraud. With the aid of IoT and AI-ML solutions, Blockchain can track the endpoints of vehicle health insurance which can give accurate data points for cost calculation. 

The dealings in blockchain are observable to all parties, and original declarations, policies, and contracts are very challenging to mute. Furthermore, blockchain can significantly reduce forgery, contract or document alterations, and multiple bookings. All attempts to change data or manipulation of data are eliminated by blockchain. All parties will be intimated about any attempts to breach the data. Data wipeout is next to impossible as data is stored not in one server but in multiple servers known as nodes, protected by encrypted keys. This provides a security layer against cyber threats. 

Faster claims settlement 

Insurance claim processing can be very tedious, time-consuming, inefficient, and sensitive to human blunders, particularly where verification is done through paperwork. Furthermore, there is a deficiency of transparency in the submission of claims, and the processing is subject to unfavorable effects of delays and errors, leading to inadequate customer service. Insurance claims are an approach concerning several entities – insurer, insured, regulators, and intermediaries, mostly distinguished by inefficiencies and malevolent intents.

Blockchain can drastically facilitate the claim creation, acknowledging, and processing time and make it hassle-free. Blockchain can be utilized to construct immutable and auditable information at the stages of insurance claim processing that can be re-accessed by all parties. 

The reduced influence of Middlemen and Intermediaries

Middlemen in insurance companies exist for good reasons – for claims data or making documents ready and registration on behalf of the claimant. Nevertheless, their existence presents bottlenecks in the procedure – holds in claims processing and additional cost for the parties involved. The blockchain architecture eliminates all brokers by providing each partaking company with the original copy of the ledger. 

Read More: Metaverse Use Cases and Benefits

Eliminating mediators is inconceivable as insurance will always need to be human-driven. However, the whole process can be outlined with IoT and AI ML integration to cover endpoints (vehicle damage, service centers, hospitals, factories). Overclaims, repetition of work, and effort are largely controlled when the endpoints are connected and managed through blockchain governance. The endpoint connection of all stakeholders is enabled through a combination of IoT-Blockchain and sometimes with AI and ML integration. 

Subrogation in claims  

Insurance schemes encounter multiple systemic deficiencies exploitable by malicious individuals. This results from making multiple policies and fake Identification numbers with the same device. Insurers infuse public data and subscribe to service providers to get notified regarding fraud investigation and deterrence. Insurers face commercial, technological, and legal roadblocks due to confidentiality and corporate access control policies while sharing intelligence. The current subrogation is manual; insurers can enforce blockchain smart contracts to automate the procedures of loss inquiry, claim notification, and recoveries from various insurers and reinsurers. 

The benefits of using blockchain to trace the data across the value chain will help improve accountability, immutability, and data security. Data cannot be tampered with in blockchain. Blockchain will do the checks and balances of the insurance contract using codified smart contracts. All records of customers’ credit history, IDs, government records, and policy documents will be available inside the block. Likewise, blockchain can be used to enlist insurance premium payment records and other archives for access and usage by other insurance companies almost immediately and accurately. 

Underwriting

It enables insurance companies to consider the risk of provisioning a client with a policy, how much cover the client should get, and how much they should pay for it. Insurance might work as a gamble, but the insurance company will never play the game without examining the data and ensuring favorable chances. Sometimes, evaluating the risk versus reward for larger corporate policies can take months to a year.

The blockchain can include external data to diminish risk liability and deliver semi-automatic costs. This can aid in automating and shortening the underwriting cycle, downsizing the expenditure of operations. Blockchains also focus on transparency and improving confidence in the underwriting process by allowing intercommunicated visibility in complex multinational collaborations.

Data entry and identification

More than sixteen percent of the world’s population is without proof of existence. Accordingly, there is a necessity for virtual identification strategies. Fortunately, considerable means exist to electronically and accurately recognize people for who they are and affirm their characteristics. In insurance, the repository of false and unverifiable data can have intensely negative consequences and sustain fraudulent movements. The engagement of blockchain in insurance can stem writers from altering formerly stored data, as data is shared among all participating associates in an unchangeable and append-only fashion. All customer data ( Govt IDs, RC books, contracts, Electronic Health records) can be included in the blockchain to identify the customer and use case. 

Know-Your-Customer (KYC)

Insurers, reinsurers, and brokers conduct auditing operations to know their customers and also contain money laundering, and it usually concerns multiple bodies like individuals and legal personnel. In a case where an insured deals with a broker who works with multiple underwriters, which in turn negotiates with reinsuring brokers, such a transaction will interest multiple participants who have to pursue the KYC/AML processes along the value chain. This overlay of procedures adds to processing costs and duration. The distributed ledger technology authorizes several partakers to add, authenticate, and swap KYC and AML documentation, to decrease processing time and cost, making time-critical transactions uninsured, and reducing operative risk.

Can blockchain also transform major insurance policies?

Although laced with considerable challenges, insurance is a route to deliver financial risk mitigation that remunerates the policyholder in case of an adverse event or property loss. However, the following are the major types of insurance equipped by modern companies and how blockchain’s contribution can be implemented among them.

Vehicle insurance

The alarming rate of road accidents and associated fatalities and injuries make vehicle insurance necessary. Annual road traffic casualties stood at 2.35 million in 2020. The financial repercussions are massive, with over $300 billion in annual expenditures, which comprise travel delays, possessions damage, medical expenses and distress, legal costs, loss of productivity, and loss of quality of life. For efficiency and customer delight, vehicle insurance businesses have delivered discount programs and developed enhanced business standards to downsize the risk of failing revenue. The development and institutionalization of Usage-Based Insurance (UBI) demand customized payable premiums per vehicle usage to award good or other driving practices. UBI supports using onboard and telematics instruments to seize details like G-force, speed, mileage, time, location, and trip duration, notifying insurance company users. The data from telematics can be an input to the blockchain. The damaged vehicle and the costs can be determined remotely using a camera-based AI ML-based system. Approvals can be automatic over blockchain contracts as the contracts cover legally binding insurance contracts as a part of the code.  

Life insurance 

The most challenging part of life insurance is that the inheritor of a policyholder must submit papers like a death certificate and the policy papers can be accessed and stored inside the block if the municipal corporations are part of the blockchain as stakeholders. Similarly, all government data, policy data, and IDs can be part of the blockchain. Data collection can be done through an API interface.

The life insurance industry can employ blockchain to enable accuracy, security, and trust in data and guarantee the transparent sharing of information between two or more parties. Generally, rather than using contracts and agreements in paper form, smart contracts can be programmed to activate and respond to all predefined arrangements. 

Blockchain can be useful in saving the bottom-line costs of all forms of insurance. 

Final Words

Blockchain enables large to medium enterprises with a stronger governance model to improve data security, traceability of information, and communication layer. Blockchain improves trust, and collaboration between stakeholders, also as a bargain improves the behavior of stakeholders – internal and external parties, as they would know that all data is secured and shared in a way that is hard to manipulate. Indirectly it helps insurance organizations improve efficiency in their business operations and provide faster service, thereby reducing cost.

SoluLab regularly conducts workshops with insurance leaders to identify use cases and build a roadmap and strategy encompassing their digital transformation-led programs. Digital blockchain is inherent to all future digital models. Contact us to know more.