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Blockchain

The Impact of Blockchain on Insurance Industry: Future is Closer than You Think

Blockchain is carving its way to all businesses worldwide, and there is a reason: it is light, fast, smart, and cheap. It is about time for an impact of blockchain in insurance, following new exciting and thriving achievements in another commercial spheres, from healthcare and logistics to the real estate.

The leading edge logistics companies like Maersk, ZIM and DHL have already embraced blockchain for their complex operations. Per ZIM, a shipment of a container from central Africa to Europe can go through over 30 middlemen, and each step can introduce a mistake. This possibility is successfully beaten by blockchain, decreasing the misshipments and deviations by 65%.

In luxury segment, blockchain helps tracking the source of diamonds and other valuable items, to be sure in their sustainable and responsible sourcing. Tracr, Everledger and Block Verify offer similar competing products, which shows great interest of the industry in a reliability only blockchain can offer as well as in private blockchain development services.

Why Blockchain Is Good For Insurance

blockchain in insurance sector

The time has come for the blockchain technology in this sector as well. Virtually all its major features play a crucial role in the insurance industry development, and will help companies optimize the current products and develop new ones, that would have been almost impossible before blockchain.

Key Advantages of the Distributed Database for the Insurance Sector

Usually, the creation of a smart contract in this field only requires certain data to input and a premium to be paid, and the guarantee is valid and operational right away.

Thanks to blockchain for insurance companies, a claim can be settled automatically by the smart contract sending the required amount of funds in tokens right in the very blockchain it is deployed in.

Blockchain for insurance companies also allows sharing the processes happening inside the contract, which increases the customer’s confidence.

  1. Automate Underwriting

  2. Lots of blockchain insurance use cases require a very standardized approach to the contracts, and smart contracts in particular, and can become fully operational with a simple set of data and an insurance payment. AXA’s flight delay and cancellation guarantee product Fizzy only requires a flight number to detect its delay or cancellation using an open flights database and a simple KYC information to check that the insured person was affected with the airline’s connected database as corresponding oracles.

    All this information is absolutely sufficient to provide a correct decision in an automated manner, without any human involvement. This approach also concerns lots of different distributed ledger insurance use cases, such as automotive, public responsibility or travel guarantee reimbursement solutions.

  3. Accelerate Claims Settlement

  4. In several industries, a claim is eligible for guarantee payout once several parameters of the accident are within a certain range. In lots of cases, the collection and evaluation of such parameters can be automated to a great extent, and the eligibility for a payout can be processed automatically in seconds or minutes. For example, B3i, a blockchain insurance consortium led by AIG, Allianz, Aegon, and Swiss Re, among the others, is about to launch the Property Cat X0L blockchain technology in this industry for real estate from naturally occurring disasters.

    Once a blockchain based insurance system receives a claim for a natural disaster, such as an earthquake, hurricane or natural firestorm, it collects and evaluates all required proofs or parameters of a disaster using oracles, connected to open databases, and gives a decision on whether the accident is covered by a reinsurance contract, and provides an accurate decision to the operator within minutes.

    In future, such smart contracts will be able to trigger the payouts automatically, if the insured entity can receive payments in cryptocurrency.

  5. Reduce Fraud and Abuse

  6. The use of open and shared databases and the process of delayed re-evaluation of all parameters ensures the minimal possibility of jeopardizing the system. In the United States alone, healthcare insurance fraud costs the companies over $40 billion, as it is comparably easy to provide false indications in order to receive the coverage of an absent therapy.

    If the smart contracts have had access to medical and health records of their patrons, detecting fraud in indications or taken medication and preventing payouts for healthcare that didn’t happen in reality would be a no-brainer. One of the prominent examples of fraud detection is implemented by Block Verify. Essentially, it is a supply chain ledger for pharmaceutics that can detect counterfeit medication which usually costs less, and restrains payouts of full medication prices in the insurance apps.

    From the companies’ perspective, the fraud schemes costing insurance companies over $80 billion a year can be avoided thanks to AI integrated right into the smart contracts. Surety.ai is an Asian startup that uses artificial intelligence to look through connected medical records to detect fraud attempts with false recipes. The processing is performed right before paying out a claim and takes as little as a few minutes to trigger a payout, whereas a review by a medically trained reimbursement agent can take weeks from a claim to its gratification.

    How Can Insurance Companies Use Blockchain

    how blockchain helping an insurers

    Blockchain has wide application possibilities in insurance. It can be used for operations ranging from contract underwriting to processing of large amounts of data input and settling a claim in one place, with all the decisions recorded for future use, proof of decision and education.

    Blockchain-based smart contracts can provide risk management, overwatch for contract terms following and even automatic claims settlement, to some extent.

    How It Can Help The Companies

    Blockchain insurance is the best new technology that can incorporate other latest tech, like Big Data, IoT, AI and Data Analytics with predictive analysis. IoT sensors, working as an oracle for smart contracts, collect and store vast amounts of data, valuable for the insurance, and allow automatic risk evaluation in case of a claim.

    Marine shipping company Maersk uses IoT technology with blockchain in grain shipping to detect moisture in shipping and calculate possible harm. This technology easily incorporates with other blockchain applications in insurance, for example, the system from Tokio Marine, and can provide the information about lost cargo right in the moment of a claim escalation. Big Data algorithms process the historical data from the blockchain and build more precise risk profiles for each transshipment, which can either decrease the insurance premium or increase the profits margin for the company.

    How It Can Help The Consumers

    The benefits of the blockchain in insurance in majority coincide with the overall benefits of the blockchain by itself. It is fast, cheap and dependable. In the US, 12.6% of drivers don’t have a liability insurance, which brings them to great financial losses in case of accidents. Although the liability reimbursement guarantee is quite inexpensive, it perfectly covers the average $3,290 property damage and $16,640 injury damage. However, most of these drivers didn’t insure themselves as consider the insurance payouts inadequately hard to obtain in case of an accident.

    Blockchain technology in the insurance industry would have enabled a transparent way of decision-making, and the ability of re-check the insurer’s actions and decisions, recorded into the blockchain by a smart contract, would have increased the trust in insurance drastically.

    The integration between different services and automation of insurance processes would also improve the situation. In 2015, only 14% of American households held flood reimbursement guarantee, which is an extremely low number, especially in lowland states, like Florida or Louisiana. The most frequent reason of declining such insurance is practical impossibility to receive a payout once flood happens, as usually at that moment virtually every household is affected, and a small number of the company agents is available to come to each and every house and evaluate whether it has been harmed.

    The B3i alliance allows automatic claim payout once the smart contract checks the open natural disaster database and confirms that the house checks with just a few parameters, such as geographical location and elevation, to gratify a claim. This way, harmed people are able to be compensated in a matter of hours, which is an incomparable advantage.

    Among the smaller reasons, the smaller benefits of blockchain in insurance for consumers include greater automation, which requires less workforce and taxes, hence smaller premiums can be requested for insurance of the same extent.

    Examples And Use Cases Of Blockchain Technology In Insurance

    Apart from the end customer solutions, some examples of which are described above, there are several more implementations of blockchain in the insurance B2B areas. For example, blockchain simplifies the creation and operation of risk pools, essentially eliminating the need of expensive and complex peer-to-peer payout, between two or more companies, and giving them an opportunity to provide fast and efficient funds to each other, following the payment story stored in the blockchain, and the terms outlined in a pooling smart contract.

    The advantages of blockchain in insurance for a €3 billion construction surety bonds European market are already proven by the Zurich Benelux’s blockchain-based system for three-party surety agreements.

    Blockchain applications in insurance have also started to speed up the marine cargo reimbursement issuance process. Tokio Marine has shown an 85% decrease in the time required to issue marine shipment insurance, which in some cases, like container transshipments, can be a matter of days.

    Reinsurance sphere has improved its processes thanks to the blockchain. The reinsurance principle requires all the data to be synchronized between entities with each premium or loss, hence getting reinsurance payments is a costly and slow process. This approach also needs funds to be spent for correspondence exchange and claims qualification processes, which increases the overall operational costs and the premiums. A shared ledger between insurer and reinsurer benefits all parties in the process, as the reinsurer gains instant access to immutable claims data of the initial insurer, and the payments can be cleared almost instantly. Per PricewaterhouseCoopers, the European Big 4 of reinsurance (Munich Re, Swiss Re, Hannover Re and SCOR SE) can save up to $10 billion a year on operational expenses cut by the utilization of such a shared ledger.

    MIT has created the MedRec, a centralized blockchain-based medical documentation ledger, which will essentially become a proof and risk evaluation base for medical insurance. Each medical record is signed with doctor’s cryptographic key and timestamped, so the information stored in the blockchain provides a dependable source for risk evaluation algorithms that affect the premiums for each customer. MedRec also has a mechanism of client confirmation, to make sure that it is impossible to add false records that would affect medical guarantee pricement in the future. In this particular case, the system is built using Ethereum, and offers great scalability and portability to another blockchains.

    blockchain technology in insurance industry

    Benefits For Insurance Companies Who Uses Blockchain

    Blockchain for insurance enterprises pays a great deal in cost efficiency, speed and automation of almost all processes, starting from contract underwriting to actual insurance payout. In some cases with a limited set of incoming data affecting the decision-making process, like in Fizzy from AXA, blockchain insurance becomes the first adequate options, as almost everything can be automated. In this particular case, a back-office with a small development team of up to 5 developers, can process all the similar cases in the world, with endless scalability. The same small team would be able to process all guaranteed payouts if all airline passengers in the world would become their clients, whereas standard approach would require tens of thousands of employees to work on every case individually.

    The connection of oracles and other specialized blockchains decreases the required manpower, expenses and possibility of a mistake, and offer automated closure of insurance and reinsurance contracts or pre-processing of large data sets for a human operator, which will need much less time for a decision. If the connected data source is dependable and immutable (e.g. a specialized blockchain), blockchain based insurance solutions can detect fraud and abuse attempts successfully, which also pays a great deal in the impact of blockchain in insurance.

    Impact Of Blockchain On Insurance Market — Summary

    Blockchain technology is fast, cost-effective, dependable in a trustless situation thanks to its immutability, and can incorporate all kinds of data storage and transactions. The use of distributed ledger technology in the insurance sector increases trust from both parties optimizes spendings, helps fighting fraud and abuse.

    Apart from the optimization of existing insurance processes, blockchain also unlocks new approaches that previously were impossible or ineffective. Insurance logic can now incorporate data streams, stored in blockchain by IoT, other connected devices and oracles. Insurance companies working on different markets can now create blockchain-based risk pools, which, together with cost-effectiveness, can lower the insurance prices and bring in more customers.

    The connection of other blockchain and blockchain-based infrastructure can enhance the efficiency, minimize the possibility of an error and eliminate the need to re-enter any kind of information multiple times, as different smart contracts, sometimes in different blockchains, can act as oracles to each other, and trigger any needed actions by themselves. Just imagine a doctor storing your diagnose and medication plan in your local clinic’s blockchain, and your medical insurance contract receives it as a claim for the funds needed for your meds. It all is just around the corner.

    Conclusion

    There are numerous benefits of blockchain in insurance, and many companies in this field have already made a step towards implementing the new technology to take their business to the next level. If you don’t want to be left behind within just a couple of years, it is worth joining the wave of the distributed ledger.

    Contact us today to get a dedicated team of developers with real experience in blockchain. We will show you our portfolio, discuss the possibilities of transforming your insurance company and creating cutting-edge solutions already today.

DO YOU HAVE ANY QUESTIONS?

LET'S DISCUSS! BOOK A CONSULTATION WITH OUR SPECIALIST


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