The advancement of technology is progressing at an amazing pace. This is evident through the development of new products such as the self-driving car, drones and the many wearable technology products currently on the market. While these are the products that grab our attention, there are other advancements which have a more lasting impact on businesses and their processes. Technology has created new efficiencies that were not possible five or ten years ago in the insurance industry. Due to these processes becoming digitized and automated, the need to focus on issues such as data security and protection has arisen. Although change can lead to some issues, there is often an impressive upside. Such is the case with the latest technology called blockchain that is attracting the attention of many insurance companies. To help clients, prospects and others learn about blockchain and its impact on the insurance industry, JLK Rosenberger has provided a summary below.
What is Blockchain?
A blockchain is a digital ledger that allows consumers, suppliers and others to connect with each other without the need for a third party to become involved in a transaction. Initially created to support the all-digital bitcoin currency, blockchain provides significant benefits for companies that have transactions which require a permanent time and date stamp. What makes blockchain unique is that all transactions are digitally recorded, reside in a distributed ledger, and are stored on multiple servers and cannot be deleted.
Impact on Insurance Companies
Although many in the insurance industry consider blockchain to be a disruptor, it has immense potential to change how these companies do business. Many believe blockchain can benefit insurance companies through:
- New Product Development – Blockchain has allowed the development of new insurance products such as peer-to-peer insurance, smart underwriting and contracts managed by computer systems automatically. As an example, there are parametric insurance companies that have streamlined processes by using blockchain to automatically make payments to policyholders when a triggering event occurs. Beyond this, it facilitates a more secure environment through which sensitive financial, legal and other documents can be exchanged.
- Enhanced Fraud Detection – It can help insurance companies improve fraud prevention and detection through enhanced security and tracking. According to the FBI, 5%-10% of all claims are fraudulent which costs companies more than $40B per year. Blockchain can help companies validate the authenticity of documents, check for police reports or records, prove date and time of policy issue, product or asset purchase and even confirm change in ownership and asset location. To be able to recover a percentage of the loss from fraud would mean substantial savings for insurance companies.
- Reduce Administrative Costs – Blockchain technology can reduce costs by automating the verification of policyholders, contract validity as well as confirm the validity of records and other documents from third parties (patient records, contractor invoices, etc.). Beyond this, it can be used to automate the claim payment process allowing payments to be made automatically when the proper events or documentation has been submitted, which could result in significant savings to companies.
- Encourage Customer Engagement – Customer engagement using blockchain has increased through several InsurTech innovations. One company has developed a solution known as, know-your-customer (KYC), which permits a customer to grant a company access to identity data when needed (contract closure). Once verified, the KYC information can be sent to other companies by the individual without the need to have the same sensitive personal information re-entered and reverified. Another company has created the ability to initiate payouts on insured flight tickets when cancellations or delays are verified from approved sources. Essentially, blockchains are making customer interactions more seamless and problem free.
The opportunities for process improvement and cost reductions using blockchain are quite compelling. While many insurance companies have already started to embrace this new technology, there are several additional innovative application methods which are just starting to be explored.