ISSUES WHICH CAN BE SOLVED WITH BLOCKCHAIN TECHNOLOGY
The insurance industry spends over $2 billion each year on fraud and compliance, but the use of Blockchain systems could significantly simplify the claims process. Providing insurers with greater access to reliable data records and creating a direct link between the customer and their insurance provider could revolutionise the way insurance companies do business.
Fraud is still a serious problem in the insurance sector, with fraudulent claims and payouts made every day with companies sometimes not knowing if the person behind the claim is who they say they are. Using Blockchain, decentralised ownership certificates with registration numbers and laser-inscribed IDs could be given to an item. This would help insurance companies automatically identify fraudulent claims during the claim process reducing losses and reducing the requirement for expensive manual checks.
While insurance is a sector that is heavily reliant on the dissemination of information between parties, at present most new business is based on the proximity of an organisation to a potential provider. The London Market – an international insurance market based in the UK – however, is looking to modernise the process by creating online deal rooms supported by Blockchain, which would make it easier for international businesses to access information and broker deals globally.
Accelerating Claim Processing
Nearly all insurance companies use a network of outside providers to process claims and this can be a costly and time-consuming process. Typically, when an individual makes a claim they are contacted by an operator in call centre who collects details about their incident and passes these on to the insurer. Using a Blockchain system, however, a direct link could be provided between claimant and insurer, with all data being directly uploaded and an audit trail being provided for every step.
Record Keeping Accuracy
One of the most obvious advantages of using Blockchain in the insurance sector is the possibility of creating identity ledgers that would create more effective relationships between insurance companies and their customers. Not only would this incorruptible record of information offer almost complete protection from identity and claim fraud for the customer, but it would allow the company to more expediently assess a client’s history and personal data to offer more effective solutions.
Blockchain technology has the potential to remove a vast majority of human interaction between processes, relying on decentralised autonomous organisations, smart contracts and identify ledgers to carry out insurance based processes with speed, efficiency, and security. This could lead to a large shift in the way people buy insurance, moving from large institutions to community based insurance groups.
A smart contract is a contract between two or more parties that is created and stored in the Blockchain. Contractual clauses may thus be made partially or fully self-executing, self-enforcing, or both. Smart contracts aim to provide security superior to traditional contract law and reduce other transaction costs associated with contracting.
Decentralised Autonomous Organisations
Ownership of a mutual insurance DAO creates a community around the policy. One possible way to organize an insurance DAO is by treating all the individual policyholders as shareholders. DAOs can exist such that the policy and its pool of premiums is not under the control of any one person or a select group of people (i.e. board of directors). The DAOs pool of capital belongs to everyone who has a policy and only a majority or supermajority can decide to use the capital in the pool for anything other than paying out claims.
Alternative Risk Management
Blockchain technology could favour the emergence of alternative risk management models shifting away from risk pooling, the predominant model in insurance.
They also found that blockchain-based identity ledgers could prove useful to the insurance industry, and may even rival government-run databases utilizing biometric authentication. When speaking to Inside Bitcoins, Peter Kirby, the co-founder of Factom, explained how an insurance company could use identity ledgers in a blockchain business model. “An identity ledger is basically a whole list of who’s who. It can have you, your brother-in-law, me and anyone else you know put in a big list. This list could be considered ‘the family’ and no one else can be added to the family,” Kirby explained – Clay Gillespie – Inside Bitcoins
CASE STUDIES ON THE USE OF BLOCKCHAIN IN THE INSURANCE SECTOR
Insurance companies have started to take advantage of quicker and cheaper internal processes by using Blockchain based systems to carry out everyday tasks.
Once there is an understanding of what the Blockchain can achieve, it does not require much of a leap of faith to understand how it can maximise the efficiency of the claims process. Indeed, tech start-up Tierion has already proved this to be the case. The required ‘proof of working’ as an insurance claim is passed through departments is highly visual and easier to monitor via a blockchain, reducing the time that lapses between point of claim and resolution.
Tons and tons of paperwork: that is what has dogged the insurance industry for decades now. As a multi-stage process this has been unavoidable for a number of years, but thanks to Blockchain technology the way in which insurers operate can be sped up and accuracy improved simply via Blockchain implementation. Administrative resources can be deployed elsewhere, with documentation logged and shared via the chain; rather than reams and reams of paper.
Typically insurance policies require the intervention of human hands – even when purchased via the web – and this can often slow the process down; particularly at weekends. What Blockchain can offer is an automated and streamlined service that can be facilitated without the need for manual interaction….and this opens up the possibility of ‘instant’ insurance policies. Fancy going out on the bike on a nice sunny day? Blockchain technology will, one day, be able to insure you instantly.
Blockchain could, ultimately, change the way that the insurance industry operates. Rather than going straight to an insurer when they want to get their vehicle covered, a driver may now instead opt for a ‘P2P’ style policy in which he clubs together with other drivers on a blockchain to create an identity and thus insure one another. With ‘sharing economy’ companies such as Uber becoming increasingly popular, this could become reality sooner than expected.