Blockchain Technology in Insurance Industry: Traditional insurance models have been surprisingly resilient over the years.
However, new technologies are altering how customers engage with companies and receive goods and services, and standard insurance is beginning to feel the effects of this shift.
Blockchain is one example of a new technological trend.
Blockchain has started to test the limits of the insurance industry thanks to SDLC Corporation’s implementation strategies.
To that end, SDLC has developed intelligent contracts between blockchain accounts to expedite and secure transactions and take the human element out of the underwriting and claims settlement processes.
Blockchain is a digital public ledger distributed across multiple computers without a central authority, the record-keeping technology behind bitcoin.
Blockchain transactions are free to use and can change how insurance is contracted.
Blockchain optimizes the insurance industry’s efficiency, security, and transparency, using public ledgers and fortified cybersecurity protocols.
Even though Blockchain use in the insurance business is still in its early stages., many other industries have begun to use this technology, including (but not limited to) those that provide and trade renters’, homeowners,’ unemployment, and travel insurance. Also, Banks Can Target HNIs through Metaverse.
Insurance Companies Embrace Blockchain Technology
Although insurance has been around for centuries, many of its practices are stuck in the past.
For example, many insurance policies are still handled via paper contracts and phone orders from policy buyers.
Even though these methods do the job, There is always a chance that someone will do something wrong or misuse something.
The Coalition Against Insurance Fraud says that fraud steals at least $80 billion annually from American consumers.
This is 10% of all property and casualty insurance losses.
When thinking about safety, effectiveness, and happy customers, this leaves a lot to be desired.—all of which are problems that blockchain technology may be able to address.
The blockchain may be the answer, but it will undoubtedly have problems.
However, before insurance companies can fully embrace blockchain technology, they must first clear several regulatory and legal hurdles.
Several aspects of blockchain technology may conflict with existing insurance regulations.
For instance, customers’ private information and policy details stored on the blockchain must be taken care of in line with the law.
Further, decentralization improves communication and lessens the benefits of information asymmetry.
This creates new difficulties for administration in cost control, product growth, and customer service for claims.
Insuring Assets and Preventing Financial Losses from Accidents
Automobile, business, and homeowners insurance are the three most common types of property and casualty coverage.
In 2019, the industry’s net premiums written amounted to $1.32 trillion.
Claim processing relies heavily on manual entry, which introduces opportunities for error.
Claims processing times could be reduced by a factor of three, and costs could be reduced by a factor of five if blockchain technology were used.
Insurance policies can be issued with greater efficiency and precision through shared ledgers and smart contracts (software that monitors a network for a specific transaction and then takes action based on predefined conditions being met).
The use of smart contracts can help automate the claims settlement process by converting paper contracts into programmable code.
Prevention of Losses and Identification of Fraudulent Activity
More than $40 billion annually is lost to insurance fraud in the United States, according to the Federal Bureau of Investigation.
Inaccuracies and fraud are possible due to the insurance industry’s antiquated procedures.
Insurers could use a shared ledger to track claim information, improving coordination and enabling the early detection of unusual patterns.
Etherisc, an insurance company, is working on automating the claims process with blockchain validation and user transparency.
Etherisc’s simplified means of claims verification to make fair payouts aims to reduce insurance fraud by comparing data from various time-stamped sources, including but not limited to weather forecasts, aircraft delays, satellite pictures, etc.
In this case study of blockchain technology, we take a look at how State Farm, USAA, Allianz, and the Lemonade Foundation
The largest area of an auto insurer in the United States, StateFarm, and the largest US financial services group, United Services Automobile Association (USAA), use a blockchain-based solution to settle auto insurance subrogation claims.
Subrogation is the legal procedure by which a car insurer seeks reimbursement from the at-fault driver’s insurer for money it paid out to its insured.
Subrogation is typically handled manually, with insurers sending each other paper checks for individual claims.
Up to 75,000 subrogation checks are shared between StateFarm and USAA each year.
According to the firms, their Ethereum-based blockchain solution generates a ledger of all transactions between the two insurers.
As a result, both parties can view the claims and verify them without giving up control to a third party, allowing trust to be established without giving up power.
According to State Farm’s vice president of P&C insurance, Schuyler Schupbach, This technology will make it possible for people to get their deductibles faster.
Since 2019, businesses have been piloting this technology, and by the beginning of 2021, it will have been released to the public.
In addition to using this blockchain-based claims process internally, State Farm hopes to make it available to other insurers.
The European insurance giant Allianz has released a blockchain-based claims platform for customers in 23 countries.
Its purpose is to facilitate the swift handling of claims by Allianz affiliates across Europe in case of an accident involving a client traveling through the region.
Within the first six weeks of the platform’s release, Allianz had processed claims for more than ten thousand international collisions.
Cryptocurrency-Based Insurance for the Living
With life insurance, the beneficiary’s loved ones are guaranteed a cash payout in the event of the policyholder’s untimely demise.
Using blockchain technology, insurance companies can verify the insured’s death and submit the claim on their behalf, relieving the burden of doing so from the insured’s loved ones at a difficult time.
When people buy life insurance, one of the most common reasons is to protect their loved ones financially in case they die too soon.
In the event of the insured’s untimely demise, the insurer is obligated by law to pay the policyholder’s beneficiaries a predetermined sum of money known as the death benefit.
Nowadays, it is essential to have life insurance.
Filing a life insurance claim is probably not at the top of someone’s mind after a tragic loss.
In some cases, loved ones of the deceased may be completely unaware that the policy even existed.
The current method for filing a death claim is dated and cumbersome.
Beneficiaries named in a life insurance policy must notify the insurer as soon as possible following the insured’s death to collect the benefits and payouts to which they are entitled.
After receiving a death certificate from the government and a medical certificate, the insurance company will begin the claims process.
Timeframes for this procedure typically range from several weeks to over six months.
Blockchain-Based Life Insurance
Blockchain could help make the process of registering a claim for life insurance more accessible and more automated.
The complexity of the claims registration process is exacerbated by the large number of parties involved, including hospitals, insurers, funeral homes, and beneficiaries.
One potential solution is an open and transparent blockchain network that includes all of these players.
Blockchain technology makes it easier for insurers and insured people to trust each other by making things more transparent and letting them use smart contracts enforced by code.
For example, with smart contracts, the claims process can start automatically when the death of an insured person is added to a database based on ledgers.
In addition, since information on a blockchain ledger can be independently checked by different people, the insured person’s family doesn’t have to do as much paperwork to show that the insured person has died.
For example, if a hospital enters information into a blockchain-based system that an insured has died, it could immediately send this information to the life insurer.
The beneficiaries would not have to file a claim for the insurer to start processing.
Storing information related to an insured on a blockchain network would also create a verifiable audit trail, which could help reduce claims fraud.
The Effect of Blockchain Technology
The insurance sector needs a better track record of adopting new, more effective methods.
While blockchain technology has the potential to bring about many positive changes for businesses and their clients, it is not without its drawbacks.
Improves productivity; blockchain technology can reduce the time and effort spent on administrative tasks like reconciling insurance payments and completing paperwork.
Blockchain’s use of cryptography guarantees that all transactions are private, authentic, and verifiable.
Faster claims processing and payouts may be possible thanks to Blockchain’s real-time data collection and analysis capabilities, which are used in the claims handling process.
These smart contracts’ code executes itself when certain conditions are met.
According to Jeff Stollman, principal consultant at Rocky Mountain Technical Marketing,
“These if/then contracts will become the insurance industry’s version of “no frills” carriers due to the dramatic reduction in administrative burden they place on policyholders.
They will be easy to manage and less expensive than comprehensive policies, with the added benefit of allowing for instant payment.
Easily penetrated by Hackers
By 2024, experts predict that the worldwide blockchain market will be worth $20 billion.
Blockchain is becoming increasingly vulnerable to cyber attacks as its user base grows.
When assessing data integrity, it is essential to consider each transaction’s legitimacy, which raises questions about potentially fraudulent insurance transactions.
If data on a blockchain is to be trusted, it must be protected from fraud.
The cost for insurance companies to implement blockchain technology will rise as its use becomes more widespread.
Information Confidentiality in a Blockchain System
With a publicly accessible blockchain, it is possible to reconstruct every cryptocurrency transaction back to its originating block.
As a result, those with nefarious intentions may gain access to and use that data.
Principles: Blockchain-based reinsurance
Reinsurance steps in to cover the insurers when many claims are filed at once, as can happen after a natural disaster. Reinsurers can save up to $10 billion annually thanks to blockchain technology’s ability to reduce risk through increased transparency, information sharing, and cost savings through process automation.
The purpose of insurance is to help people cope with the financial impact of calamities, both natural and artificial.
However, this is a very dangerous bet to take, especially during times of extreme weather.
Here’s where reinsurance comes in: when natural disasters strike, insurance companies can buy protection from other companies, known as reinsurers.
At Present, Reinsurance
There is a convoluted and inefficient system where reinsurers provide insurance for insurers based on one-off contracts and manual processes.
For example, reinsurance can cover a portion of an insurer’s risk for a specific period or hazards like earthquakes or hurricanes.
Reinsurance, as it is done today, is a lengthy, complicated, and inefficient procedure.
For example, individual risks in a facultative reinsurance contract must be underwritten, and the negotiation process can take up to three months.
Typically, insurers will work with multiple reinsurers, increasing the volume and variety of information exchanged during the claims process.
Institutions’ varying approaches to data collection and management can result in conflicting understandings of how a contract should be carried out.
Blockchain-Based Insurance Reinsurance
Blockchain technology could fundamentally alter how reinsurance is handled today by allowing insurers and reinsurers to exchange data on a distributed ledger efficiently.
Updating both the insurer’s and the reinsurer’s systems simultaneously with blockchain technology eliminates the need to reconcile books between institutions for each claim.
Sharing information on a distributed ledger means reinsurers can allocate funds for claims almost in real-time, speeding up the claims process and reducing the need for reinsurers to collect information about individual claims from primary insurers.
According to PWC’s analysis, the blockchain can potentially increase operational efficiencies within the reinsurance industry, resulting in savings of up to $10 billion.
Since reinsurance is responsible for an estimated 5-10% of current insurance premiums, this could have a trickle-down effect and reduce consumer rates.
Where do We go from here Regarding the Insurance Industry?
However, while blockchain technology has the potential to enhance the insurance industry in some ways (including accuracy, efficiency, privacy, and more), all insurers that adopt the technology must commit to doing so following established ethical norms.
In addition, better tools for insurers to collaborate, share data, and make insurance processes less of a headache for customers can be provided by a blockchain, but only if standards and procedures are standardized.
Since insurance companies have stringent requirements for privacy and security, blockchain technology still needs refinement before it can be used in the industry.
To ensure the secure implementation of blockchain technology, the insurance industry must also provide transparent regulatory frameworks.
Insurers and policyholders alike stand to benefit from blockchain once these conditions are met.