Blockchain Use-Case: Insurance
Disruptive solutions can turn the most conservative industry upside down to its massive benefit
Insurance is one of the most conservative, highly centralized, and walled legacy industries that are about to be disrupted by blockchain technology if it allows itself to be. The only hindrance is fear. With the prevailing air of distrust among clients growing with financial institutions offering centralized services as reflected in countless underinsurance cases, it is high time that insurance enters a paradigm shift and delves into technological innovations that can massively redefine insurance processes out from antiquity to advancement.
A Blockchain-Empowered Insurance
The application of the DLT or distributed ledger technology is the core feature of blockchain that eliminates the participation of third-parties and intermediaries. The idea of the open ledger is for all companies involved to have access to the same data source in real-time, be it the hospital, agent, broker, insurance company, airline, car dealer, etc. As all blockchain-registered transactions, i.e.: medical records, are verified and encrypted, there is no chance that data can be tampered with, with shorter claim processing, much lower claim denials, and reducing often redundant checkups.
Detection of Fraud
Standard protocols, even with digitization, can fail to identify fraud. The United States of America suffers more than $40 billion in yearly fraudulent claims. What blockchain can do is the immutability of each and every verified transaction which are timestamped and rendered permanent due to its resistance to censorship. Fraudulent patterns from entered data coming from multiple sources can be spotted using algorithms.
Internet of Things
In 2019 alone, 26.66 billion IoTs were activated, and an average of 127 IoT gadgets per second connected to the Internet. The enormous data that IoT generates can provide extreme value to create insurance models but can be difficult to manage without the use of blockchain. It makes it possible to sort and store processed data then size down into peer-to-peer the management of such big and complex networks, thus, eliminating costly data center construction.
Insurers need to be protected, especially when volumes and volumes of claims come piling up. Insuring insurers is called reinsurance. The current state of the reinsurance system is sadly in a high state of inefficiency. Now, blockchain can restore things to order by protecting authentic records for accuracy, and the faster data sharing capacity brought by DLT. Correcting the operational efficiency measures of the reinsurance system can bring the industry up to $10 billion in operational savings.
On-demand insurance is an online purchasing of policies without direct interaction with an agent or broker. With the use of their smartphones, customers can buy insurance coverage without the hassles of a regular insurance transaction. But more than the traditional insurance policy issuance, which is often tedious and paced slowly by a lot of underwriting paperwork, on-demand insurance requirements demand more, including underwriting, policy documents, costing, risk, claims, buyers records, etc. Blockchain technology made things simpler, especially the record-keeping and the transparent risk-transfer efficiencies of DLT.
This insurance model specifies perils that need to be insured for far less premium payments, instead of an all-encompassing policy. It is a less popular insurance model even with immediate benefits because of low-profit margin and high distribution cost. A parametric insurance platform based on the blockchain can become popular with those with inaccessible financial instruments.
The above-mentioned use cases are only the beginning.
The Good News is…
According to a survey of insurance companies conducted by Accenture in 2019, 80% either already adopted or planned to adopt blockchain technology. While most are still at the proof of concept, some are collaborating and forming alliances to accelerate adoption to realize the use cases and prevent dangerous hack attacks. Insurance is wanting of speed, transparency, and cost flexibility to be finally liberated from age-old traditions.
Timing is critical, and customers are restless. Fraudless transactions and speedy claims can regain customer trust and confidence, and blockchain’s got what it takes to deliver the desired results and the flexibility to create newer and better products for audit, case management, and risk modeling.
Getting the big picture and the knowledge applied to go with it can turn fear into excitement.
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