Getting Ahead of the Game Using Blockchain in Insurance Industry
Blockchain, since it made its official debut back in 2009, has emerged as that ‘dazzling new technology,’ which has the potential to forever alter the business landscape across financial organizations. While it is yet to be accepted as mainstream technology, Blockchain is certainly creating the right buzz. A report by Ernst and Young (EY) considers Blockchain as a game changer but with a few more years to come to fruition. Global consulting firm, McKinsey puts the potential of Blockchain at $ 110 billion—$ the amount global financial services industry stand to save by integrating Blockchain solutions.
That said, the distributed ledger technology has great potential for the entire value chain of the insurance sector—from underwriting, pricing, payments and collections, claims, back-office functions, and risk capital. As per McKinsey’s report, Blockchain solution is developed around four characteristics:
- Decentralized validation which requires validity of action (of adding new data)
- Redundancy which requires continuous replication to prevent failure at any point
- Immutable storage which requires linking each stored block with its previous block making it impossible to be hacked, and
- Encryption which requires digital signatures enabling identification of participant who initiated an action.
These characteristics allow use of Blockchain as a disruptive technology solution for some of the historic challenges in insurance industry such as underwriting, billing and claims, fraud handling, and customer experience. The other key areas in the insurance ecosystem which will significantly change through adoption of Blockchain are claims and product management, policy services, marketing, underwriting and sales & distribution.
But how exactly does Blockchain promise this, and more?
Improved customer engagement: The major benefits of Blockchain comprise empowered users who have control of their personal data and transactions with a shared consensus among unknown, non-trusted participants without the need for any agency or third party to validate the process. By simply integrating a customer-controlled Blockchain for processes like KYC, insurers can eliminate the frustration customers feel over having lack of control over their personal information and the need to repeat information for each transaction.
Better fraud detection: According to the FBI, fraudulent claims cost US non-health insurers in excess of $40 billion each year. By deploying Blockchain as a cross-industry, distributed registry with external data to verify and validate claims, documents, authenticity, ownership, et al, insurers can look to significantly increasing effectiveness in fraud detection and pricing.
Reduced administrative costs: By automating the verification process of policyholders—identity, contract validity, auditable claims and data from third parties—Blockchain can facilitate a substantial lowering of costs. Also, high data accuracy, process integrity, faster transaction speed, reduced complexity and clutter contribute to building a sustainable, highly efficient ecosystem that offers tremendous cost savings.
Other emerging trends in insurance space with implementation of Blockchain are P2P insurance, which provides secure platform connection capabilities, involvement of larger players such as re-insurance and consortiums to invest on Blockchain, and smart contracts which will self-execute when pre-defined conditions are met.
Blockchain may not be the remedy for all business issues but the business requirements that can be fulfilled by Blockchain technology are evolving. Some proactive actions that the insurers can focus on include assessing what they already have and what they really need to stay competitive, drawing a roadmap for implementing Blockchain, enhancing Blockchain skills, partnering with other players, a sharp focus on RoI, and most importantly, a change in business thought leadership. To understand the challenges in the insurance space and analyze if Blockchain can offer a solution, download this PoV here.