What is Blockchain Technology?
A blockchain is essentially a record, or a ledger of digital records- one that is distributed between multiple parties. The record cannot be altered unless there is a consensus among a majority of the participants in the system. Once entered information can never be erased. The blockchain contains a verifiable record of each and every transaction ever made.
The potential for using blockchain technology in various sectors is increasing day by day and the value delivered to financial services is gigantic. Not only does blockchain offer an efficient and cost-reductive approach to business, but it also promotes growth in revenue due to the high-quality service it delivers which attracts more business.
Pain points of the Insurance Industry:
The insurance industry currently deals with a lot of technical and logistical difficulties when it comes to dealing with claims. Especially in P&C insurance, filing claims involves an incredible amount of paperwork and communication which makes room for errors as well as fraudulent practices. Reviewing claims and conduct processing is still done manually, making it a time-taking and costly operation. In the entire procedure, the exchange of information between an insured and the insurer creates an inefficient exchange of data for both the parties. Major pain points include:
Complicated Exchange of Information
The process of assessing risk factors and determining liabilities of the potential client to determine coverage and premium costs is one of the preliminary steps in issuing insurance. This process tends to be tedious and time consuming. Eliciting personal information from the client is a task that involves a lot of manual research. On the other hand, coverage details and costs determined by the insurance company tend to be complicated and often lack explanation. This creates a situation where the policyholders may become misinformed about the details of their policy.
Prone to Fraud
Fraud proves to be one of the biggest challenges that affect almost all industries. Large corporations spend billions annually to come up with sustainable and effective ways for fraud prevention. The insurance industry is no stranger to this concern. Insurance fraud in the USA amounts to a loss of $40 billion dollars every year, according to the FBI. With a large number of claims turning out to be fraudulent, the insurance industry needs to reassess its approach towards fraud detection and prevention.
When it comes to filing claims, the process has always been complicated and time-consuming for both the insured and the insurer. The procedure involves constant communication between the insurer and the insured as well as immense attention to detail; especially when it comes to sensitive information such as damage or loss sustained by the policyholder, coverage policies, deductibles and overall costs. Moreover, the process of handling a claim involves a series of double-checks and This exchange often contains human error in the form of delayed or inaccurate reporting of sensitive data.
All the information relating to insurance as well as records of an insured is distributed across multiple channels. Apart from insurance carriers, multiple stakeholders like agents, medical institutions, tax authorities, etc. each have their own repository for such information. With such a large amount of data fragmented into different sectors, insurance companies incur heavy processing fees in order to consolidate all this information.
Blockchain to the rescue!
Boasting of features like decentralization, data integrity, immutability, and smart contracts, Blockchain emerges as a solid defense mechanism against the complications currently present in the insurance industry.
With its automated approach and immutable mechanism, blockchain offers a heightened level of security and speed. Once a transaction is completed in a blockchain platform it is irreversible and permanently recorded in the ledger, thus making it establish greater trust between entities. Blockchain provides a solution to drive efficiency and security by managing claims in a responsive and transparent way. With proper verification and recording, blockchain technology keeps a record of all the claims submitted. So, if there are multiple claims for a single incident, the network would be aware of it.
With smart contracts, validation and verification serve as core components of blockchain technology with each user on the network is verified for authenticity. Blockchain enforces extensive cooperation among insurers, policyholders, manufacturers, and other parties present in a network. With a smart contract, transactions are approved only when the defined conditions have been met and agreed upon by consenting parties. This way, fraudulent practices are eliminated and there is transparency between parties.
With a single platform serving as a repository for all information- whether it’s contracted, transactions, policies, information about the customer or even internal reports, there is no fragmentation of data. The information is secured from end to end with every user on the network having access to the distributed ledger.
So is Blockchain the Future?
With a definite need to reduce administrative cost and increase efficiency in processes and developing automated procedures, all the while making sure that the entire system is secure and there is no threat to sensitive data, blockchain seems to be a more reliable option. The insurance industry, among other industries should actively seek to implement this technology to develop a modernized approach to insurance.