Blockchain and smart contracts: revolutionising the insurance industry

Jan 04, 2019 | 8 months ago | Read Time: 4 minutes | By iKnowledge Team

Insurance firms are turning to blockchain and smart contracts for bringing efficiency, transparency and security in policy management, underwriting and claims processing.

With the emergence of blockchain technology and smart contracts, more and more insurance companies are enhancing efficiency in their operations. Seamless processes will expedite the client registration and claim processing areas leading to customer delight. With smart contracts eliminating the possibilities of a fraudulent transaction, the new-age insurance company will be able to save more and thus, give you innovative solutions at attractive rates.

How do Blockchain and smart contracts work?

Blockchain was introduced when an unknown person or groups of individuals going by the name of Satoshi Nakamoto, developed Bitcoin, a popular cryptocurrency. He created the first blockchain database using an algorithm that was to change the future of the financial landscape across the world. A number of cryptocurrencies flooded the market after the introduction of Bitcoin. Over the years, speculations related to the use of cryptocurrencies impacted the currency markets. But financial firms across the world saw the opportunity to transform their processes with the blockchain technology.

According to Satoshi Nakamoto’s Whitepaper, Blockchain was developed to introduce a trustworthy peer-to-peer electronic cash system to eliminate errors in cash transaction such as double spending. In a blockchain system, an event is created and each time a change is made to the event, a new block is created with timestamps. Every transaction is securely linked to all the data related to the transaction.

Smart Contracts are codes that act as self-executing contracts and are present on top of blockchains. The codes in smart contracts include the agreed terms between the buyer and the seller. These contracts allow credible transactions without the need of third parties.

Game-changing Insurance revolution with Blockchain

For many years, insurance companies involved numerous steps for policy document processing, data validation and claim management. To prevent fraudulent transactions, additional verifications were put in place. All the additional processes led to inconvenience for customers who had to wait longer to get the policies processed. Today, the insurance sector is moving forward at a rapid pace because customer engagement is one of the key business growth drivers.

By harnessing the blockchain technology, insurance firms are moving to automated systems. These systems allow a customer to gain access to all the information right on their smart device. For quicker claim processing, blockchain uses all the blocks of data that were created from the beginning of the policyholder’s journey to generate necessary documents whenever needed. The data validation is immediate with AI-powered systems matching all the required information from various sources. Every piece of data has a verified source which prevents fraudulent or duplicate transactions that led to losses earlier.

Compliance documentation such as KYC and relevant identity proofs are essential for client onboarding in the insurance industry. The distributed blockchain network securely gathers all the information. The documents are linked to systems of internal or external verification teams. Data cannot be altered in a Blockchain system for misuse or fraudulent transactions. Any new data entered into the system is added to the chain as a new block update. Insurance companies are also exploring blockchain for underwriting coverage and premium information at master and local levels.

Data from external sources can be used through strategic partnerships to automatically estimate the risk liability of a client and propose a semi-automatic pricing. Through smart contracts, every time a policy is created, the details of the policyholder will be linked to sources in the specific area of insurance. For example, if a health insurance policyholder needs to file a claim in the future, the verification will be prompt with insurance companies pulling structure electronic data from the healthcare service provider’s server through strategic partnerships[1]. The paperwork is greatly eliminated with transparency in the transactions and there is a minimized scope of human errors. The simplified workflow using advanced blockchain technology shortens the service request fulfilment turnaround time and also leads to enormous savings for insurance businesses in the long term. According to Goldman Sachs, from the global processing costs of an estimated US$10 billion, the banking sector can save an estimated US$2.5 billion with consistent use of blockchain in KYC[2]

With fewer entities managing the value chain, blockchain and smart contracts are bound to revolutionize the insurance sector. Manage your online insurance policies with the exciting times ahead in the insurance industry.

As these advances gradually make their way through the industry, you are best served by aligning yourself with an insurance company that is forward looking and ready to innovate. Aegon Life, for instance, is heavily focused on online as a distribution channel for their policies because it helps to reduce the intermediaries involved in the selling process, thereby leading to lower costs. The benefits of these are passed down to the customer in the form of low cost life insurance policies such as the iTerm Plus Insurance Plan which provides life insurance coverage for as low as Rs 498 a month. The plan has multiple variants, with one of its variants offering protection against as many as 36 critical illnesses as well as permanent disability, terminal illness and death. 

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