By Anand Prabhudesai, Co-Founder, Turtlemint, 0
Insurance has been around for centuries and will continue to play an active role in our lives for centuries ahead. Since risk is ubiquitous, tools like insurance that help mitigate risk will always be important. However, the way the insurance industry operates and the products that it offers have metamorphosed over the years. As technology pervades our lives and dictates the way organizations conduct their business, it has also had an impact on the insurance industry. One such technology that is slowly becoming the talk of the insurance industry is “Blockchain”.
A blockchain is essentially a digital ledger that cryptographically records events. It is decentralized and distributed which means that it works on the basis of consensus among a majority of the participants in the system and is shared by many different parties. It is also immutable which means that the information or data once entered cannot be erased or tampered. The blockchain contains a certain and verifiable record of every single transaction ever made. Simply put, it is distributed, anonymous, time-stamped, based on consensus, immutable, secure, programmable.
In the insurance industry, where trust is the most premium commodity, a technology like blockchain can be a game-changer for the industry, as well as, its participants. Most policies continue to be processed on paper which frequently requires human intervention and can potentially increase the probability of error. Amplifying this issue is the inherent complexity of the insurance process which requires multiple providers and stakeholders to work in tandem to deliver a product. This requires a great deal of information sharing and collaboration which can create multiple points of failure. For example, information can be lost, policies can be misinterpreted, and settlement times lengthened. Blockchain can effectively address many of these challenges. According to one research report, the global market for blockchain in insurance is expected to grow from $64.5 million in 2018 to $1.39 billion by 2023—a compound annual growth rate of 84.9 percent.
Harnessing the Value of Blockchain
Fraud Detection & Risk Prevention:Fraud is one of the biggest issues currently plaguing the insurance industry. The insurance process is such that there are many potential visibility gaps that can be exploited to perpetrate fraud. For example, in the claims process information is passed on from the customers to the insurers and then to reinsurers in a slow, mostly paper-driven process that has multiple moving parts. These moving parts can create gaps and opportunities for
criminals to make multiple claims across different insurers for a single loss. Blockchain technology can combat this challenge by capturing & maintaining records of the insured and by enabling better coordination between insurers. Additionally, major insurers invest in data gathered from the public domain and from private companies in order to better predict and analyze fraudulent activities. However, the efficacy of this data in identifying fraudulent behaviour is limited since the data is often inconsistent due to the difficulty of sharing sensitive information between different organizations. Blockchain technology allows insurers to record transactions permanently and store claims. Once maintained on a shared ledger, this data can help insurers collaborate and identify suspicious behaviour across the ecosystem.
Health Insurance:Generally, an individual patient will visit and consult multiple doctors and specialists in his lifetime. Consequently, his medical data will be spread across disparate sources, making it difficult for the insurance provider to access the individual’s entire medical history. Lack of accurate data can lead to incorrect risk assessment, higher premiums for the customer and denial of claims. Additionally, due to the sensitive nature of health records, it is also imperative that data privacy is maintained at all times. Blockchain technology can cryptographically secure medical records and ensure that the relevant data is shared amongst health providers and the insurance industry while still protecting patient privacy. New data can be added to the shared ledger over time, creating a trail that allows insurers and data providers to audit the medical information across organisations. Additionally, data can also be anonymized and shared for research. Blockchain technology can help create an industry-wide repository of healthcare data while at the same time maintaining patient privacy.
Reinsurance:The primary role of insurance providers is that of risk bearers. They help people offload risk and mitigate the impact of extreme and often unexpected events. Needless to say, this can be a highly risky proposition. If the insurance providers are protecting us, then who is protecting them? This is where reinsurance comes in. Reinsurers provide insurance companies with coverage. The primary challenge here is the hindered flow of information between organisations. Blockchain technology can help provide a potential solution to this problem by creating a safe and immutable network where information can be shared and update such that both the insurers and the reinsurers have access to authentic and up to date information.
Blockchain technology offers a number of promising use-cases and applications across the insurance industry. Having said that, the insurance industry needs to align around standards and processes within blockchain technology to leverage it in the most optimal manner. Additionally, considering that insurance is a highly regulated industry, legal and regulatory frameworks within the industry need to evolve and provide clear guidance for blockchain technology to succeed.
Health Insurance:Generally, an individual patient will visit and consult multiple doctors and specialists in his lifetime. Consequently, his medical data will be spread across disparate sources, making it difficult for the insurance provider to access the individual’s entire medical history. Lack of accurate data can lead to incorrect risk assessment, higher premiums for the customer and denial of claims. Additionally, due to the sensitive nature of health records, it is also imperative that data privacy is maintained at all times. Blockchain technology can cryptographically secure medical records and ensure that the relevant data is shared amongst health providers and the insurance industry while still protecting patient privacy. New data can be added to the shared ledger over time, creating a trail that allows insurers and data providers to audit the medical information across organisations. Additionally, data can also be anonymized and shared for research. Blockchain technology can help create an industry-wide repository of healthcare data while at the same time maintaining patient privacy.
New data can be added to the shared ledger over time, creating a trail that allows insurers and data providers to audit the medical information across organisations.
Reinsurance:The primary role of insurance providers is that of risk bearers. They help people offload risk and mitigate the impact of extreme and often unexpected events. Needless to say, this can be a highly risky proposition. If the insurance providers are protecting us, then who is protecting them? This is where reinsurance comes in. Reinsurers provide insurance companies with coverage. The primary challenge here is the hindered flow of information between organisations. Blockchain technology can help provide a potential solution to this problem by creating a safe and immutable network where information can be shared and update such that both the insurers and the reinsurers have access to authentic and up to date information.
Blockchain technology offers a number of promising use-cases and applications across the insurance industry. Having said that, the insurance industry needs to align around standards and processes within blockchain technology to leverage it in the most optimal manner. Additionally, considering that insurance is a highly regulated industry, legal and regulatory frameworks within the industry need to evolve and provide clear guidance for blockchain technology to succeed.