The potential of blockchain to change the financial services sector has been repeatedly hailed. Although the technology has a wide variety of possible uses, will it truly revolutionize the insurance industry in 2023?
Blockchain is a decentralized digital ledger that records transactions and monitors access across a network of computers. It is perhaps most commonly linked to cryptocurrencies.
According to Marlene Dailey (pictured), financial services senior analyst at RSM US, a tax, audit, and consulting business, blockchain has the ability to foster a culture of trust for insurers by offering a network with restricted access and a safety mechanism to transmit important information.
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What advantages does blockchain technology in insurance offer?
In this article, we investigate the viability and ramifications of these use cases in terms of how blockchain might, directly and indirectly, enhance the core operations and business models of insurance. The use cases discuss ways to enhance an insurance company’s operational processes as well as interactions with suppliers, intermediaries, and policyholders, raising the value of the product and setting the framework for more market competition among consumers. Costs should be reduced, operational efficiency should be increased, and connections with insureds should be strengthened.
- Transparency: Everyone may view each transaction recorded in the database due to the blockchain’s decentralized and open nature. Claims that are transferred to a blockchain-based ledger that is shared across carriers in a peer-to-peer network cannot be changed with ease. The connected network’s insurers have rapid and accurate access to past claim data.
- Accurate risk assessment: Sharing access to a blockchain ledger allows insurers and reinsurers to access information about policies, premiums, and loss history, which makes the underwriting process easier.
- Automation of work: A blockchain can safely automate all smart contract-related activities, negating the need for human involvement in a claim. Its effectiveness could result in cost savings for the insurer, which over time might result in cheaper rates. Blockchain can enable straight-through processing for claims and provide quicker reimbursements for policyholders.
What actions regarding blockchain should insurers take?
Blockchain implementation may not be possible in the current IT departments due to a lack of resources or technical know-how. In order to find cutting-edge technology partners for blockchain, insurers could consider investing in them, as well as thinking about working with outside blockchain development professionals.
In order to meet increasing client demands for customized services, more privacy, innovative products, additional value, and competitive pricing from their insurers, new systems, procedures, security measures, and business models are required. To ensure the creation of standards allowing blockchain-enabled interoperable data repositories to fit their own long-term business objectives, individual insurers and the industry as a whole should actively collaborate with larger healthcare consortiums. To use blockchain to build next-generation goods and services with more interactive interactions with their policyholders and future-proof themselves against invasion from other industry sectors and non-traditional rivals, insurers should strategize, experiment, and generate proofs of concept.
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Top Blockchain use cases in the insurance sector
After seeing the advantages of blockchain for the insurance industry, let’s look at some of the most popular use cases to see how it may genuinely assist businesses.
- Smart contracts: To distribute and organize insurance contracts, the insurance business traditionally depended on dependable middlemen like underwriting agents and insurance brokers. Smart contracts, however, do away with the requirement for human involvement. To guarantee that the conditions of agreements are honored or not, smart contracts are essentially self-executing contracts that are automatically performed via underlying blockchains. The conditions of contracts between policyholders and insurers are spelled out in the code upon which smart contracts are based in the context of insurance. There is a great amount of transparency since a blockchain records every transaction using smart contracts. This is due to the fact that every transaction is visible to everyone on the blockchain. Also, because there is no human intervention, there is a substantially lower danger of unlawful manipulation and contract mistakes. Also, because manual evaluation is no longer necessary, claims investigation, coverage analysis, and processing are completed much more quickly. As a result, the insurance market becomes more effective and the consumer’s confidence in the sector grows.
- On-demand insurance: is a versatile insurance concept that allows consumers to quickly turn on and off their insurance coverage. The more times all parties involved engage with the policy papers, the more difficult it is to manage the records. For instance, on-demand insurance necessitates considerably more in terms of underwriting, buyer’s data, policy documentation, risk, claims, etc. Yet with blockchain technology, keeping ledgers is now easier. Blockchain can be used by on-demand insurance providers for effective record-keeping from the moment a policy is created until it is canceled. industry.
- Health insurance: Blockchain in health insurance allows insurers and healthcare providers to quickly, securely, and accurately share medical data. The process of filing health insurance claims can become costly and time-consuming when patient data is shared between hospitals and health insurance companies. The industry may yearly save a significant amount of money by having the synced data of all patients in one location. Furthermore, it would be difficult to alter patient medical information stored on the blockchain without establishing an audit trail.
The use of blockchain in the Indian insurance industry
The Indian insurance industry has been steadily adopting blockchain technology to address some of its key challenges. One of the biggest issues faced by insurers in India is the high incidence of fraud, which has led to significant financial losses. By using blockchain, insurers can create an immutable and transparent record of transactions, making it much more difficult for fraudsters to manipulate data.
Moreover, the Indian insurance industry is also grappling with the problem of low insurance penetration rates. Blockchain technology can help insurers reach more customers by making insurance products more accessible and affordable through the use of smart contracts. Smart contracts allow for the automatic execution of contracts when certain conditions are met, reducing the need for intermediaries and speeding up the claims process.
Several Indian insurance companies, such as SBI General Insurance, ICICI Lombard, and Bajaj Allianz, have already implemented blockchain-based solutions. For instance, ICICI Lombard has launched a blockchain-based platform for distributing insurance policies to farmers, while SBI General Insurance has implemented blockchain to streamline the claims settlement process.
Overall, the use of blockchain technology in the Indian insurance industry has the potential to improve efficiency, reduce fraud, and increase insurance penetration rates, benefiting both insurers and policyholders alike.
In conclusion, blockchain is rapidly gaining ground in the insurance industry, and it has the potential to revolutionize the way insurance is bought, sold, and processed. The decentralized and transparent nature of blockchain can help to reduce fraud, speed up claims processing, and improve overall efficiency.
As more insurers begin to adopt blockchain technology, customers can expect a more streamlined and convenient insurance experience. The use of blockchain-based smart contracts can automate many insurance processes, reducing the need for intermediaries and making insurance products more accessible to a wider range of customers.