The Blockchain Can Transform Insurance. Here’s How

Jul 08, 2018 | 5 months ago | Read Time: 4 minutes | By Manan Vyas

If there’s one thing for sure, its that you have heard the word blockchain floating around in the past few months. From newspaper headlines to WhatsApp jokes everywhere you look, people are talking about the blockchain. Developed in 2008 by Satoshi Nakamoto, the blockchain was designed to serve as a public transaction for bitcoin, but has since transpired into a revolutionary technology that continues to transform the world of finance, including the insurance sector.  

Blockchain

What is the blockchain?

The blockchain can be simply defined as an “open distributed ledger” that is digitsed and decentralised and maintains a public record of transactions. These transactions are stores on a peer to peer network, which is essentially a database that maintains continuously updated records of ownership and value.

In other words as described by Steve Nutall via Fifth Quadrant’s CX Spotlight, one can think of the blockchain like a “Google Doc”. Nutall adds, “On the blockchain, we simultaneously see and update the ledger, of which – despite being distributed among many people – only a single version exists. Via this global, shared and trusted network, we can transfer and validate data, value, documents at scale without lengthy processing times, expensive processing fees, or intermediaries.” He goes on to summarise the benefits of the blockchain succinctly as “trust, transparency, speed and efficiency,” making it no surprise that the blockchain has creeped into discussions about Fintech globally.

In fact, the World Economic Forum’s report in 2016 about emerging technology trends which would be central to the global financial system, the blockchain comes on top. The report states that the blockchain is likely to account for 10% of the global gross domestic product (GDP) by 2027.

Blockchain and insurance so far

Blockchain offers the potential to transform the way business is done in the insurance industry, however, it has not yet been translated into action. In a recent study conducted by consulting firm Pricewaterhousecoopers, while 56% of insurance companies agreed to the fact that the blockchain is really important, over 57% also said that they did not yet know how to respond.

Traditionally, as compared to other industries in the financial sector, insurance has been slower to respond to technological advancements due to the nature of the industry, and also due to the mammoth amounts of data involved in the same. However, despite this, there seems to be a growing awareness about the capabilities of blockchain among insurers, and while its practical applications and uses are not yet crystal clear, the blockchain will disrupt the insurance industry, and transform the way business is conducted.

Blockchain Across the Value Chain

Credit: Cognizant

Benefits of blockchain in insurance

For any business in the financial sector, there are several benefits of blockchain that can be leveraged across the value chain, including the long term benefits of lower operational costs, increased automation, secure transactions, reduced risks amongst others. These would translate into the insurance sector equally well, providing a strategic advantage to insurers by making business processes easier, efficient and cheaper. In fact, a recent report published by Goldman Sachs estimates that consistent use of blockchain in banking simply for KYC/AML checks has the potential of saving $2.5 billion out of the $10 billion spent globally in processing costs for the same. Cost-reduction isn’t the only way the blockchain promises to benefit insurers. The new methodology and ease of conducting business will translate into excellent customer service, attracting more customers, thus increasing the revenue base of insurers, while reducing costs.

In addition to this, as per a report prepared by information and technology firm Cognizant, blockchain has the capability to transform travel, crop, property and health insurance amongst others. For instance, a unified ecosystem of travel departments and agencies could automate claims processing in the travel insurance sector, while, for the property insurance sector, claims processing time can be reduced significantly by using a blockchain which can span insurers, garages and police forces. In a similar manner, the health insurance industry can also be transformed with the introduction of a blockchain that connects hospitals, physicians, doctors, labs, which would help claims processing as well as the underwriting process, both of which are believed to be the most tedious in the industry.

Blockchain in Insurance Industry

In fact, several major life insurers have already started experimenting with blockchain based solutions and applications, including streamlining activities such as business processing, policy administration, customer payments, distribution of proceeds, claims processing, amongst several others.

More importantly, it is critical to note that the benefits of the blockchain are not limited to the insurer, and in fact, translate to all the other stakeholders including customers, regulators, government. This happens as blockchain introduction is likely to standardise data security standards and ensure regulations are followed, and for customers it will ensure that all personally identifiable information (PII) and protected health information (PHI) is safe and secure. Similarly, the introduction of blockchain could help reduce fraud using a audit trail, making the transactions on the network more secure for customers and the government. These benefits make one thing clear: the blockchain age will transform existing insurance processes, making the industry more efficient, user friendly and profitable for all stakeholders.

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