A system of distributed databases called a blockchain can independently verify, sign, exchange, and verify transactions. This secure and open way to conduct business transactions allows for a new level of trust, transparency, and security. This allows additional stakeholders, such as vendors and brokers, ecosystem partners, or reinsurers, to interact with one another.
What is blockchain technology - It creates a stronger network that ensures data security and accuracy. Blockchain allows parties to keep records of their contracts, assets, and ownership without having to rely on intermediaries. It can be used in conjunction with smart contracts, which allows insurers to create innovative products and automate their processes. Let's talk about Blockchain in the insurance industry.
The way that Consumers' interactions with businesses have evolved.Blockchain could revolutionize the way insurance contracts are made. Blockchain optimizes transparency, security, and efficiency across the entire insurance industry by using public ledgers and strengthened cybersecurity protocols. This technology is used in many areas, including travel insurance, homeowners, trading renters, and traders.
Blockchain platform differs from traditional computer database systems. It is distributed and decentralized. The records of the Blockchain are kept on multiple computers simultaneously. Blockchain records are a distributed ledger. Users have one copy of the ledger. Advanced cryptography ensures that every block of information added to information is linked to previous blocks in an unbreakable, permanent sequence. Before adding to the ledger, the new blocks will need to be verified by other computers. To access specific blocks, you will need unique keys. The system will reject any attempt to access a particular block of information without the correct key.
Smart Contracts
Blockchain technology works with smart contracts. PwC defines a smart contract as a digitally signed and computable agreement between two or three parties. A software agent can execute and enforce some terms of smart contracts. Smart contracts allow information to be shared securely and allows for secure execution. This is an example of an If/Then program. If an insured car is involved in an accident, an insurance claim will be paid. This type of payment contract can be executed without the need for human interaction thanks to Blockchain's smart contract. We can see the potential for large-scale organizations to benefit from this powerful technology by automating the contract. Blockchain technology has changed over time, from its first generation to its third generation.
The first generation of Blockchain technology was based on capturing transactions:
- Unique identities
- maintaining private customer data
- Audit trail of payments transactions
The Second generation of Blockchain technology was based on capturing transactions:
- Content (contracts and agreements, claims forms, invoices that ink interactions with clients, policies, or claims documents)
- Access to information from third parties
The Third generation of Blockchain technology was based on capturing transactions:
- programmable services (Indexing and confirming the use of 3rd automation services)
- Reporting data from the Internet-of-Things
Blockchain Implementation Has Many Benefits
Blockchain network is a decentralized ledger that can exist in infinite numbers of nodes. The greater number of nodes ensures transparency. Blockchain eliminates intermediaries and ensures lower fees regardless of the contents of the ledger. Blockchain can store any amount of information or cryptocurrency focus, not just bitcoin. Data can be both programmed and individually identified. Users can assign properties to data. The data can be programmed to represent a currency, share of a company, or diamond certificates. The main benefits of Blockchain implementation are:
- Reduce transaction time by making transactions fast and easy.
- Reduce cost: overheads, cost of intermediaries
- Reduce risk: Cybercrime and tampering fraud protections
- Increase trust through record-keeping and shared processes
Conditions For The Use Of Blockchain
There are some conditions that Blockchain implementation should take into consideration. Blockchain can be used to disintermediate transactions that involve multiple parties. They require not only an intermediary's assurance but also a precise record of the date/time. Blockchain is useful when there are competing interests between the parties to transactions. Retroactive manipulation of data can be risky, and multiple uses of the same asset may be possible. No central trusted authority is needed or available. If transactions are only between a few parties or don't require an intermediary, or if an established, trusted intermediary is already in place, then insurance players can continue to work under their existing transaction models. Insurance companies should be aware of the limitations of Blockchain technology in terms of security, standardization, and scalability. These are the conditions that private Blockchain can be applied to.
Read More: Everything You Need to Know Regarding Cryptocurrency and Blockchain Technology
Who Uses Blockchain Technology?
How does blockchain technology work - Blockchain can be beneficial for organizations with large numbers of records. It can be used by banks, hospitals, governments, and insurance companies. It is important that you understand that not all blockchains are created equal. There are many different types of Blockchains that are in use around the world, and there are also numerous blockchain initiatives under development.
- Open and public blockchains: These are used by governments and nonprofit organizations where public information is available.
- Private or closed blockchain: Only invited users can see, use and participate in the information. Insurance companies would find this useful to share information about insurance policies to help with billing, administration, and claims payments. Only the information that is necessary to share is shared.
Blockchain's Role In The Insurance Industry
Blockchain plays a significant role in the insurance sector and helps minimize friction in business operations by employing smart contracts. It makes distributed ledger technology (DLT) networks easier and more automated. Reconciliation of data is facilitated via Blockchain. It increases precision and cuts down on time spent looking for information. Gains in efficiency and cost reduction are both possible.
This improves customer experience by delivering more accurate and faster service. It can reduce the claim cycle and lead to greater customer satisfaction. It facilitates smoother interactions between customers and insurers through faster and more accurate access to data.
Insurance For Property & Casualty
Property and Casualty Insurance includes primarily commercial, auto, and homeowner insurance. Processing claims require manual entry. There is always the possibility of human error in this case. Blockchain technology will reduce the claims processing time by fivefold and make it three times easier. Automation can be used to improve the accuracy and efficiency of claims and payments. Paper contracts can be converted into programmable programs using smart contracts. The claims process will be automated.
Health Insurance
The health insurance industry has a lot of inefficiencies. These include manual claims procedures and inaccurate record-keeping. They need to be more accurate and effective. Systems and equipment must be able to communicate with one another in order for doctors to give patients the care they need. Interoperability is challenging to implement in a medical system.
Medical records can be exchanged and encrypted using cryptography by healthcare professionals. It will promote interoperability and enhance system security for health insurance. Patients can control their medical data, and medical records can be stored safely. By doing this, the industry will be able to save money while also improving patient happiness.
Fraud Detection And Risk Reduction
FBI reports that insurance fraud costs the United States more than $40 billion annually. Due to the outdated processes used in the insurance industry, potential fraud and error are possible. Blockchain prevents this by storing claims information on a digital ledger.
How Can Blockchain Support Insurers With Knowing Basic Fundamental Rights?
Blockchain could prove useful in high-value areas such as claims and finance. In the case of processes that require constant reconciliation with outside parties, Blockchain could be more advantageous. Many insurers use smart contracts and blockchain privacy. Insurers can create insurance contracts that pay in these circumstances. Blockchain will allow insurers to deliver some of the essentials. These are listed below.
- Streamlined Subrogation
- Claims procedure that is open
- To gain data-driven insights on future customers and to help with more complicated pricing, the shared loss history is used.
- The encouragement of more effective money transfers between insurers and third parties during the claims process.
Blockchain Technology's Impact
Insurance is known for its ability to use new, more efficient processes. Both customers and companies can reap the benefits of Blockchain. There are some limitations. Below are some of the limitations and benefits.
Benefits
- The majority of these processes are time-consuming and manual. Blockchain can streamline the process of reconciling and filing paperwork for insurance contracts. It can improve efficiency.
- Blockchain cryptography ensures that transactions are authenticated and secure. It will increase trust and protect customers' privacy preferences.
- Blockchain allows for real-time data collection, analysis, and reporting. This will accelerate claims and payout processing.
- Smart contracts offer another benefit. Smart contracts have a logic that automatically implements when certain conditions are met. This reduces paperwork.
Limitations
- Every day, there are many new users on the Blockchain. There is always the possibility of cyber attacks.
- Data integrity can be compromised. To ensure data integrity, Blockchain must protect against fraud.
- Operational costs are high. It will be more costly for insurance companies to adopt blockchain technology in their everyday operations as it becomes more common.
- Blockchain can be accessed publicly in cryptocurrency (digital currencies). This means that each transaction can be traced back to its original block. Criminals can access information in order to exploit it.
The industry is sensitive to privacy and security concerns. Therefore, blockchain technology must be improved to meet the requirements of insurance companies. Insurance companies must provide clear regulations to ensure the safe use and security of blockchain technology. These requirements will be met, and the Blockchain can transform the insurance industry for both companies and customers.
What Are Blockchain Use Cases For Insurance?
Blockchain can be used in many industries, including the insurance industry:
- Registers of high-value articles and warranties
- Anti-Money Laundering (AML) procedures and Know-your-customer (KYC)
- Products that are parametric (index-based).
- Reinsurance practices
- Claims handling
- Distribution methods
- Peer-to-peer (P2P) models
The Life Insurance Industry And Blockchain
According to researchers, blockchain has the potential to disrupt the insurance industry in many ways such as:
- Smart contracts are activated by an event
- Enhanced back-end efficiency
- Disintermediation
- risk assessment and Improved pricing
- Insurance options for new types
- Reaching out to the underserved
Blockchain can bring cost savings. Blockchain can impact claims, product development, underwriting, and administration. It's easy to see how Blockchain can help. Many blockchain applications today are focused on cost savings. Insurance companies are looking at Blockchain as a way to automate the process of paying claims. Blockchain can be used to automate claims by verifying coverage between companies as well as reinsurers. It will automate claims payments and lower insurance companies' administrative costs. Gartner's analysis estimates that Blockchain will bring $3.1 trillion to new business value by 2030. It is possible to envision a future where Blockchain can be used to submit new life insurance applications.
Blockchain could also be used to transmit any type of evidence, including electronic health records (EHR), for underwriting. Future changes in pricing and product development will be possible if digital evidence can be easily integrated into underwriting. Trying to combine the Internet of Things as well as Artificial Intelligence will result in insurance process automation, which will transform our industry. These are still emerging technologies, and the insurance industry must do its due diligence to fully benefit from them.
Blockchain In Life And Health Insurance: Getting Crowd-Sourced Knowledge
Life and health insurers are just a few of the players looking to adopt Blockchain to improve their ability to maintain academic records, perform transactions, and interact effectively with stakeholders. The key question is whether blockchain technology has unique attributes that can help insurers reduce prices, manage risks, improve customer service, grow and ultimately boost their bottom line request for services.
Recently, Errna's Center for Health Solutions teamed up with the Center for Financial Services to conduct a crowd-sourcing project that explored how life and health insurers could use Blockchain and other technologies to enhance their value proposition in the financial sector or banking sector. The crowd was asked to consider how insurers could use emerging technology within the next five to ten years to improve the existing standard operating procedures as well as systems while improving the customer experience.
What did we discover? These top use cases are the most promising and realistic for life and health insurance companies. Although it's still early days in blockchain adoption, these applications can be a good starting point for those looking to harness the potential of the technology. These use cases are just a few of the many.
Read More: 5 Ways That Blockchain Technology Is Changing the Business World
Uses Cases For Life And Health Insurance Companies
This paper investigates the viability and implications of these use cases. It focuses on how Blockchain development could improve an insurer's business processes and models, either directly or indirectly. These use cases are aimed at improving the operations of an insurance company as well as its interactions with providers and intermediaries. This will improve the customer experience, increase the value of the product, and lay the groundwork for increased consumer choice. The goal is to cut costs, improve operational efficiency, and strengthen relationships with insureds. These are a few examples from the report.
Moving toward interoperable, complete health records The added security and trust that this technology allows for between entities is why it can solve the interoperability issue better than other technologies.
Smart contracts to help with administrative and strategic needs. Blockchain could record financial transactions and agreements automatically and link them together just to create smart contracts which act on the data.
More effective detection of fraud Smart contracts can be used to determine whether fraudulent information has been submitted to a health or life insurer with false claims, falsified applications, or any other channel.
Improved accuracy of the provider directory Unique provider directories could be created using the technology's decentralized consensus protocol to enable providers and insurers to update their listings faster and more easily.
Making the application process more user-centric A blockchain that provides a more accessible, comprehensive, and easier-to-use set of medical records could bring comfort and security to what is often a frustrating and discouraging process for many.
Facilitating dynamic client/insurer relationshipA smart contract that securely stores electronic health records could provide the basis for the integration of a variety of wellness-related behaviors in the client/insurer dynamic.
When it comes to blockchain, life and health insurers need to be bold. Blockchain offers great opportunities beyond incremental improvements to existing business models. It can be used to harness Blockchain's unique attributes and create new interactive policies, launch innovative services and increase business value.
The Move Toward Interoperable Medical Records
Blockchain's security and trust-building capabilities between entities are two of the reasons it is better than other technologies for solving interoperability problems. A blockchain-based interoperable, comprehensive health record would likely be pulled directly from existing EHRs at hospitals and physician offices. The majority of today's health records are stored in a single provider system. Blockchain allows providers to choose which information they upload to a shared blockchain for a patient event or to continuously upload to it.
The integration of Blockchain will not solve all of the interoperability problems that exist today. The benefits of creating an interoperable, comprehensive, and complete health record in short- and long-term should encourage stakeholders to investigate this technology. This technology may also impact the way that health information exchanges work in the future.
What Can Insurers Do About Blockchain?
- Insurance companies are under increasing pressure to cut administrative costs. Blockchain could help in this area by modernizing outdated IT systems and improving efficiency.
- Due to the aging workforce in the insurance industry, it is important to increase automation. Blockchain capabilities can help.
- To meet customer demands for customized services, increased privacy preference, innovative products, and competitive pricing, new systems, processes, and security protocols are required.
- Existing IT departments might not have the expertise or manpower to bring Blockchain to life. How to invest in blockchain technology - Insurers should look for potential partners in blockchain technology and invest in them.
- In order to realize the full potential of Blockchain as a business transformation tool, insurers will need a combination of advanced analytics and artificial intelligence as well as collaboration with many stakeholders.
- Individual insurers, as well as the entire industry, should work together to ensure that standards for interoperable data repositories using blockchain technology are developed in a way that is profitable for them.
- Insurance companies should plan, experiment, and create proofs of concepts to leverage Blockchain to create next-generation products and services that are more interactive with policyholders. They also need to future-proof against potential encroachment by non-traditional industry sectors.
Conclusion
Blockchain technology is still in the early stage of its use in the insurance industry. However, its use cases and benefits have proven their importance to the industry. Blockchain project helps the insurance industry reduce costs by automating verification procedures and smart contracts and using blockchain-based payment systems. Blockchain technology is changing the face of the insurance industry by automating processes and increasing transparency.
