Insurance is one of the oldest industries in the civilized world. Traders have been insuring their goods for 1,000 years. Though the concept of online brokers took hold, a majority of this industry still operates on phone calls and manual processing of paper contracts.
All of this has begun to change with the advent of blockchain technology, a secure cryptographic form of record-keeping on shared ledgers. With decentralized public ledgers and free-to-use structure, blockchain optimizes security, efficiency, and transparency, thereby transforming the execution and insurance contracts.
Impact of blockchain in claims servicing and insurance sector
Blockchain offers tangible and practical solutions to significant issues plaguing the insurance sector, creating a more productive environment for both – the companies and the customers. Here’s how blockchain can impact claims servicing.
- Improved Efficiency: Currently, the processing of insurance claims is a tedious process involving augmented human effort making the entire process error-prone. With its secure structure, blockchain streamlines the processing of paperwork and offers complete control of personal information to individuals.
- Better Trust: High costs, risk of errors, delays, and inefficiency in operations has resulted in an atmosphere of mistrust between the insurers and the insured. The cryptography feature in blockchain can bring in an element of security by making transactions valid, authenticated, and transparent. For instance, the mere possibility of comparing Incurred Claims Ratios (ICR) when getting a claim settled can give consumers a sense of greater control, in turn, boosting their ability to repose their trust in the insurance company.
- Quicker Processing of Claims: With real-time collection and analysis of data, blockchain fast-tracks the processing and release of claims. Blockchain can act as a shared ledger for the insurance data, thereby serving as a single source of truth. For policy-holders, smart contracts can drive the claim process without any manual intervention. For insurers, workflows like record keeping, registration, payment, and final settlement can be automated to save time and cost.
- Concept of Smart Contracts: Smart contracts are programmable contracts that are automatically executed on meeting specific predefined parameters. They significantly reduce paperwork in the insurance processes to increase the quality and quantity of output with lower costs of operations, more robust policies, and immediate release of payments.
- Fraud Prevention: The distributed, decentralized public ledger makes blockchain a useful tool for detecting and preventing fraud. Blockchain records every transaction to enable easy access to verify the authenticity of policies, operations, and claims.
Application of blockchain in the insurance sector
Property and Casualty (P&C) Insurance
For P&C insurance, claims processing is a daunting challenge as it involves the assessment of damages and manual gathering of data from multiple sources. We understand that the evaluation of each policy is unique, and manual intervention is more susceptible to errors. The P&C insurance sector is a compelling use case for leveraging blockchain as it facilitates coding of business rules and allows insurers/policy-holders to manage and track their assets digitally. Here, smart contracts can simplify the automation of claims processing. For smart homes, IoT sensors and smart contracts can monitor temperature, pressure, voltage and inform the owners of any anomalies and automatically schedule a call with a surveyor if alarming issues are detected.
Processing of automobile insurance claims is an elaborate process involving different players at different levels. It requires gathering police reports, evidence, KYC data, hospital records in case of injury, and manually reviewed and approved claim quotes.
For the automobile insurance process, blockchain’s smart contracts can be linked to sensors on a vehicle enabling insurers to receive an automatic alert in case of an accident, damage, or theft. These smart contracts can summon the first responders such as paramedics, towing services and launch the processing of claims, without burdening the policy-holder.
Blockchain can also create provisions for smart contracts to append police reports and other relevant claim data to fast track the process of disbursal with minimal human intervention.
A single person typically consults a multitude of medical specialists in a lifetime. Managing data between so many parties is a cumbersome process. A cryptographic blockchain facilitates a synchronized & secured process of sharing data between parties without compromising the patient’s privacy. A system of medical records maintained on the blockchain can store a cryptographic time-stamped signature of every file, allowing insurers to audit relevant medical information on a use-case basis without infringing the privacy of the policy-holder.
In the insurance industry, customer churn is a big issue where valuable prospects drop off virtual chatbots or cease communication with the relevant sales associates. Due to a lack of personalized experience and timely engagement, customers dis-engage with the insurance company and do not renew their claims policy.
Insurance companies can create smart contracts to trigger the execution of specific tasks for a defined criterion. In the case of automobile insurance, once the insurance renewal date is near, smart contracts automatically reward the past driving behavior of the user and lower their premiums, automobile users are informed of the upcoming servicing date. For health insurance, smart contracts can suggest preventive healthcare plans based on customer’s lifestyle indicators. Such personalization and proactiveness can hence ensure a seamless customer experience.
Undeniably, a lot of ground needs to be covered before the insurance industry can become wholly blockchain-powered. Auto and P& C insurance service providers could be early adopters of blockchain as a connected ecosystem can be achieved much faster than a health insurance environment that has multiple touchpoints like the provider, payor, government through which the information flows. The laws and regulations around health insurance govern whether government intervention may hasten or delay the implementation of blockchain in this space. The future of this transformation also rests on the advancements made in the area of blockchain technology itself.