How Blockchain Is Impacting The Insurance Industry

Although the cryptocurrency industry is currently seeing a downward trend in its prices and demand, the underlying blockchain technologies still have unexplored potential and use cases across different industries. Blockchain has unique features that can transform the way financial institutions operate.  The insurance industry, which has traditionally been a slower adopter of digital disruptions, is open to the benefits of blockchain. 

The main reason for the receptiveness of the industry to blockchain is quite simple: blockchain-powered solutions solve a lot of issues of the traditional insurance system. Although blockchain technology is at its early stages in the insurance industry, the transparency, immutability, security, and speed it offers could transform the way the sector operates. 

The Problems

The lengthy and failure-prone communication between the provider, intermediary, and customer in the insurance industry makes the advancement of digitization a key debate. The German insurance market alone currently has over 500 insurance companies and more than 45,000 brokers in operation. The several branches are in charge of managing policies totaling €1.7 trillion. Despite this, more than any other industry, insurance industry depends on paper documents.

Another concern is about data, a key component of every insurance policy. As important as data are, they are worthless when unfiltered, indicating the need for data analytics.

Long-term success of any industry is built on foresight and adaptability. Depending on the old process will not only predispose the insurance industry to human error, due to the massive volumes of data gathered, it will also open it up to hackers and cyberattacks.

The Solutions 

Blockchain will solves these problems by digitizing transactions as part of the secure and immutable ledger. It also impacts the internal structure in the form of cost savings and process improvement. 

As regards data analytics, big data is futuristic. It can identify incidents of fraud early on and sound the alert. It also boosts security by automatic image recognition and database comparison. Integrating blockchain into the Big Data analytics process adds another data layer, which fulfils the two major Big Data analysis requirements: security and accuracy.

Benefits of blockchain

Blockchain has the potential to benefit the insurance industry the following ways:

Speed and efficiency: Having a single place to store transactions streamlines processes, making them faster and more efficient. It also helps to avoid human errors.  

Transaction traceability: Blockchain transactions can't be edited or deleted. This is a significant advantage over typical supply chains prone to theft and fraud. 

Cost reduction: In the absence of a centralized player, vendor and intermediaries’ costs can be removed. Less interaction is required on transactions when authorized via the blockchain, thereby reducing the time spent on them.

Enhanced security: Every transaction on the blockchain needs to be agreed on via a consensus of network members. They are always encrypted and linked to the previous transaction with a method known as hashing.

Better transparency: Due to the absence of a centralized authority, the system has an improved transparency. Members of the network carry out and validat transactions.

Application of blockchain in the insurance industry

Fraud detection: Insurance company mostly depends on the previous history of claims to insure, which is prone to manipulation. Consequently, the insurance company underwriting can suffer losses.

Blockchain technology helps reduce frequent cases of fraud in the insurance business by transferring insurance claims to an immutable ledger. 

Claim Settlement: Blockchain can automate claims by verifying coverage and claim settlement using smart contracts. The technology will thus lower administrative costs for insurance companies. Information on a blockchain ledger is independently verifiable between parties, lifting the pressure to prove facts off of the claimant. 

New insurance products: Insurance companies can offer insurance products that were previously impossible as there is a tamper-proof digital trail available to give underwriters comfort. This, coupled with technologies such as IoT and AI, can bring new products to the markets.

Life insurance: Blockchain technology takes the burden of filing a death claim away from family members by replacing the manual process with an automated system built on a blockchain ledger. 

Reinsurance: The technology eases the flow of information and payments between insurers and reinsurers by safeguarding reinsurance contracts on the blockchain using smart contracts. 

Health insurance: Using blockchain technology, medical records may be cryptographically secured and transferred between health providers. This boosts efficiency in the health insurance industry.

Property & casualty insurance: A shared ledger and insurance policies executed through smart contracts can bring an order of magnitude improvement in efficiency to property and casualty insurance.

B3i and we.trade: The Story of Collapsed Consortia

B3i, a blockchain insurance consortium backed by more than twenty insurers and reinsurers, sets to shut down after major insurers withdrew from it. The company whose funding came entirely from insurance firms was incorporated in Switzerland in 2018. 

Over the years, B3i had competed with other insurance ventures, among which RickStream, a U.S insurance consortium which later collaborated with B3i, was chief. B3i also announced a Series B funding of an undisclosed amount in late 2020, following a Series A of over $20 million. The eventual collapse came after its inability to close a further funding round.

In June, we.trade, earliest enterprise blockchain startups, also shut down. we.trade for trade finance was backed by a dozen big banks and IBM. 

Global Blockchain in Insurance Market 

Global Blockchain in Insurance Market accounted for $177.85 million in 2020 and is estimated to be $39.56 billion by 2030 and is expected to register a compound annual growth rate  (CAGR) of 72.4%.

Source: Globe newswire 

Gulf Cooperation Council (GCC) As An Instance

The GCC is one of the world’s fastest-growing markets, registering growth of nearly 7% each year in gross written premiums over the last six years.

They are innovating across the value chain by deploying new-age technologies such as AI, Internet of Things (IoT), drones, and blockchain to generate more value in marketing, product development and underwriting, and in claims prevention and customer support. Maximizing the impact of these initiatives starts with digitalizing the firm’s core operations in order to gear it up for seamless integration and alignment with the new technologies. 

Conclusion 

Digitalization is no longer just propelling the growth of the insurance industry, it is also transforming the entire value chain. Blockchain, though still in its early stages, has some promising use-cases and applications in the insurance industry. 

In near future, the insurance industry will undergo tremendous changes. Accident reconstruction is made possible by virtual reality and cutting-edge software. The blockchain helps in the safe keeping of private contract information, and the sensor-driven IoTs provides new insights into consumer behavior.