Can Blockchain revolutionise insurance?

Blockchain and Insurance
Blockchain technology will be one of the most significant innovations for the insurance industry over the next few years. Although cryptocurrencies have dominated recent hype cycles, it’s in the world of “distributed ledger technology” that Blockchain will find some of its most potent applications, with significant disruption for the insurance sector.
Distributed ledger technology promises several significant advantages:

  • Increased compliance with “Know Your Customer” and other regulations through sourcing and validating high-quality identification data. 
  • Reduced fraud due to capturing and verifying every aspect of a transaction, whether that’s premiums, payment processing, or claims management. 
  • Better combined ratios, underwriting, and reduced leakage resulting from faster, more efficient policy processing. 
  • Enhanced customer satisfaction due to quicker claims processing and payouts.
The industry is moving fast, too. There are more than a thousand Blockchain technology startups out there, all promising a way to revolutionize your business. With all the potential in Blockchain, it’s vital for the insurance industry to understand how disruptive the technology could be. Insurers can build a robust strategy that carefully integrates Blockchain and distributed ledger technology.

Validation and verification of identities can enhance KYC and other compliance areas

Compliance and validation for KYC and other areas can be a significant overhead for the insurance industry. In many insurers, KYC has to be repeated for the same customer, again and again, across multiple departments. This creates an enormous amount of duplication and wasted productivity.

The Blockchain solves this problem by providing an audited, unalterable, verified record of all KYC checks, in one place. Compliance teams can insist on a single, robust due diligence process. Once a customer has been verified and has passed KYC validation, any part of that business can be certain they’re compliant.

In more advanced applications, several insurers might even work together to create a KYC Consortium—a shared Blockchain application of all policyholders from all the participating insurers, meaning only one KYC check that can be shared with everyone else, regulations permitting.


Enhance understanding of risks and external factors to improve underwriting and pricing

Due to its distributed nature, Blockchain applications can integrate with other data sources and third parties to provide more complete risk profiles for underwriting purposes. For example, multiple insurers could use a shared Blockchain application to distribute unalterable claims details allowing for better analysis of specific at-risk sectors, locations, or other criteria. Other parts of a Blockchain underwriting app might link with weather services powered by machine learning to understand weather-related risks and price accordingly.

Smart contracts enshrine the commitment that insurers and policyholders have to each other

Insurance is an industry that should be based on trust, but in many cases that trust is lacking. Whether it’s due to underwriting exclusions, clever wording, or other caveats, policyholders don’t want to be left high and dry. Enter the smart contract. Smart contracts are written on the Blockchain and simply state that if pre-existing criteria are met, then a particular outcome will be triggered.
For example, a holder of an auto insurance policy has a traffic collision. The insurer writes a smart contract that as soon as a police report is filed that identifies the other driver as the responsible party, that the claim will be forwarded for payment. Because the agreement is written into a smart contract, the policyholder and insurer are bound by that agreement.
This helps to increase trust in the insurance industry, and can be a powerful competitive differentiator.

Blockchain can help to increase trust in the insurance industry, and can be a powerful competitive differentiator.


Validation of claims on the Blockchain reduces the potential for insurance fraud

The insurance industry expends enormous resources fighting fraudulent claims, with an estimate that property and casualty fraud costs around $30 billion a year. Processing claims on the Blockchain can help to reduce the frequency and exposure of insurance claims fraud.
To start with, insurance companies can use smart contracts and other Blockchain technology to record and verify all insurance policies on the Blockchain. When a claim is submitted, the insurance company can run a check against the Blockchain record and smart contract to validate it.
For our auto insurance policyholder, if the customer and their broker accidentally submitted an identical claim, the smart contract would only allow one of them to be paid out. Since the distributed ledger is “immutable,” there would also be a permanent, full, unalterable record of transactions, enquiries, and payouts.

Insurers can collect data from policyholders and capture it on the Blockchain

With the rise of Internet of Things (IoT) devices and smart sensors, consumers are capturing more information than ever about every aspect of their lives. With the right permissions and agreements, insurers can also take advantage of this information when deciding what to pay out. For example, if a car is being tracked by a smart device, it could be possible to understand if it is going over the speed limit or breaking safety rules when it has a collision. This data can be captured by the insurer and recorded on the Blockchain in an unalterable way.

Policyholders and others can update information and make claims in real time

A key aspect of the blockchain is its decentralized nature. Multiple policyholders, insurance employees, and customer service or claims processing agents can access information at the same time. This real-time updating can make it easier to collect information for policy processing or claims.
In some cases, insurers can even expand the Blockchain application to allow third parties to report against claims. Integrating with police, fire, or medical departments allows insurers to get the latest information to allow for better processing of claims.
For example, our auto policyholder has an accident, but it’s not serious. Once the police have checked the scene, the policyholder can take photographs of the vehicles, get information from all parties, then upload the information from their smartphone. This data gets recorded on the Blockchain and forwarded to claims processing teams so they can start the claims process immediately.

Blockchain applications will transform the customer experience in the insurance industry

For those brave enough to innovate, distributed ledger technology will build that most important of areas—trust:

  • Transparency: Policyholders will understand exactly what an insurer will pay out on and can track the movement of their claim throughout the claims payment process.
  • Automation: Smart contracts and other Blockchain applications make it much easier to understand if certain parameters have been met, triggering further actions without manual involvement.
  • Speed: Automation and the availability of good insurance and claims data makes it much faster to process claims, meaning more rapid payments to the policyholder.
As the industry becomes ever more competitive and prone to disruption, the customer experience will be an enormous competitive differentiator. The Blockchain ticks many of the boxes that create satisfied customers, resulting in fewer policy lapses, better word of mouth, increased advocacy, and lower customer acquisition costs.
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PSA Insurance Solutions Ltd Reg No: C83206 is a limited liability company under Maltese Law, having its registered address at: MIB building 53 Abate Rigord Street Ta’ Xbiex Malta, Tel + 356 22 58 34 92. The company is enrolled to act as an insurance agent in terms of the Insurance Intermediaries Act, 2006 by the Malta Financial Services Authority (MFSA), Notabile Road, Attard BKR 3000, Malta.