- Category: Blockchain Insurance
The insurance sector is an important cog in the wheel of the economy. It is also a very complex industry with many moving parts. When technology is going through a paradigm shift in the current ecosystem, customers expect more personalized, customized, and faster service. For these reasons, the traditional insurance system is notably inefficient and highly complex from a customer’s perspective. Also, to ascertain this limitation from the companies point of view; they are unable to provide expected services to their customers as they don’t have enough information about their customers and still depend on a traditional setup. This huge gap in the insurance sector can be plugged and fixed by blockchain technology, and this is just one of the many examples.
Today when everything is accessible with just a click or a swipe of our phones, customers are spoilt for choice. They demand efficiency, reliability, quick solutions, and, most crucial of all, cost-effectiveness.
Therefore, integrating and implementing blockchain into the insurance sector is the need of the hour. The future of the insurance sector rests on how efficiently and rapidly we can do so.
Limitations of the insurance sector
Insurance is one of the regulated sectors that is perhaps its major drawback. In addition, it relies heavily on human insight and input, which is unreliable at best. Here’s a list of limitations that blockchain technology can counter:
- Lack of transparency and trust: The insurance sector is as opaque as it can get. A customer could never determine the logic behind the varying costs of policies, the premium amounts, and disparities in insurance coverage.
- Lack of data and analytics: Harnessing complete, consistent, real-time, and credible data is one of the biggest challenges and pain points of the insurance industry. Moreover, the collected data is fragmented, and the lack of communication between various companies creates chaos, leading to discord that affects customer gratification. In addition to this, data collected isn’t customer-centric, and therefore, companies cannot provide holistic solutions to their customers. Also, human errors need to be factored in. These issues have made the insurance sector desperately seek efficient and effective data analyzing tools.
- Lack of automation: The current system is not yet fully automated, adversely affecting customer turnaround due to miscommunication, lack of mutual understanding, insufficient data, and poor service. Other issues include executing policies, clearing claims, sorting disputes, underwriting, and outlining new contracts.
- Cyber threats, frauds, and data loss: Insurers are always living under the fear of losing data and being constantly subjected to cyber-attacks. Insurance frauds are perhaps the biggest bone of contention for insurance companies. It is very difficult to detect fraudulent claims due to incomplete or misleading data and a lack of transparency.
If we amalgamate all the limitations, it is easy to determine that most of these problems can be resolved or reduced considerably by technological upgradation. This is where blockchain technology can become a viable solution to the problems faced by the insurance industry.
Pragmatic use case of blockchain in the insurance sector
Blockchain technology has the potential to revolutionize the insurance industry. It is a decentralized, secured database that can store transactions. It also provides a way to store information in a secure and immutable way. It has no central authority and can be accessed by anyone on the network. The information stored on a blockchain cannot be deleted and can only be updated if all parties agree to do so, thereby ensuring complete transparency, reducing risks, and establishing trust. At the same time, Smart Contracts, AI (Artificial intelligence), and IoT (internet of things) are other disruptive technologies that work in tandem with blockchain technology. Together, they can assertively rejuvenate and permanently change the dynamics of the insurance sector.
Let’s evaluate the use-cases of implementing blockchain in the insurance industry:
- Identifying and preventing frauds through smart contracts:
In India, approximately $45 billion worth of insurance fraud occurred in FY2019. The fraudulent activities such as claim frauds, eligibility frauds, and other such frauds done by policyholders are currently at an all-time high. Such swindling activities can be considerably reduced by executing smart contracts on the blockchain. By doing so, two things will happen. Firstly, blockchain will bring much-required data transparency that will be visible to everybody. Secondly, smart contracts contain the insured’s personal data such as medical records, claim amount, Id proofs, and other such details. Also, data is stored in smart contracts which can’t be altered. A smart contract will self trigger as soon as the insured undergoes a medical procedure or makes a claim, ensuring smooth data flow and quick transactions processing. Such loopholes plugged by the blockchain will not only identify frauds but also facilitate automated claims while assuring timely fraud prevention.
- Cost-effectiveness: Insurance companies are largely looking to reduce operational costs and increase their profit margins. The distributed ledger technology can bring down 15% to 25% expenditure, thereby saving approximately $5- $10 billion annually. Blockchain will eliminate data duplicity and ensure authenticity and elevate auditability. It will also curb data loss, wrong claims, and cyber frauds as all data is encrypted. Also, blockchain technology will reduce costs by eliminating the need for intermediaries.
- Interoperability between insurers and reinsurers: Data on blockchain will be visible to everyone and will ensure interoperability. Currently, new insurance contracts are underwritten by multiple parties, which can create confusion and cause discrepancies due to data redundancy. However, information on the shared, visible-to-all digital platform will save time and build trust among the associated parties. This real-time data will be accessible, and any subsequent changes made will be visible and verifiable by all. Reinsurers’ dependence on the insurers for information will decline considerably, automatically speeding up underwriting contracts.
- IoT and blockchain: IoT enables all collected data to be sent across to the blockchains. This ensures that the records created on the blockchain are centralized, encrypted, and fortified. Again, any alterations made will automatically be reflected on the blockchain, which will be visible to all. This functionality will make it easier for insurance companies to raise the alarm if any malicious activity is detected.
- Peer-to-peer insurance benefits: The P2P insurance model is an emerging insurance model that is still in the development stage. It has been conceptualized to bring in more transparency, minimize risks, and reduce fraud. However, insurance companies still face issues pertaining to the model’s complex structure, issues of scalability, and claim management. Implementing blockchain in this model can solve these issues through smart contracts and ensure appropriate premium distribution.
- Other benefits: Storing verified and audited data on the blockchain can help insurance companies enforce better pricing and evaluate risk assessment. They can use the authenticated data to launch new insurance policies and ensure wider reach, especially identifying customer bases in rural and under-developed regions.
Blockchain use-case in 5 leading insurance sectors
- Travel: By 2025, the global insurance market is touted to be valued at a staggering $35 billion. However, erratic flight schedules, flight cancellations, medical curbs, and other travel-related issues can disrupt the insurance claim process. Blockchain in Travel Insurance can help streamline such aspects of travel. It offers the potential to make travel insurance more transparent, more accessible, and more efficient. For instance, the data on blockchain will allow travelers to have an accurate view of their coverage and ensure instant claims. On the other hand, insurers will collect more accurate data on the claims made for future use and also provide better customer service.
Blockchain can also provide a secure, decentralized database for storing travelers’ personal information. This would allow travelers to access their personal details at any time without having to go through an intermediary or third-party provider.
- Motor: Blockchain in Motor Insurance can help to reduce fraud and make the industry more efficient. The data will be publicly available to insurers, reinsurers, and brokers alike, decreasing discrepancies and eliminating fraud. The insurance companies pay a humongous amount in claims that aren’t verifiable and involve unnecessary paperwork. The auto sector is now looking for blockchain-based solutions to counter these problems.
For instance, the companies will be able to view all customer details stored in a public distributed ledger and have full access to KYC details. It would be easier for them to gauge genuine claims. In addition, they could alter their policies based on the customers’ driving history, such as DUI records, if any, and car mileage.
Another use case of blockchain would be the company’s ability to weed out counterfeit auto spare parts. According to a report, the auto industry loses billions of dollars in fake spare auto parts. Blockchain can counter this as it can provide end-to-end vehicle identification, from manufacturing to customer ownership. This can be done using smart tags such as QR codes and RFID tags which will be encrypted in the vehicle to make it trackable.
Blockchain technology will also help motor insurers cut costs, increase efficiency, ensure smooth payments, and improve customer service.
- Healthcare: Healthcare industry is prone to massive insurance frauds. The recent survey suggests that the health industry incurs $6 to $8 billion worth of losses annually. Implementing blockchain technology is a viable option for insurance companies to eliminate these frauds. The accurate patient data stored on the distributed ledger will weed out fraudsters and process validated claims only.
- Agriculture: Agriculture sector is hugely dependent on climatic conditions and weather changes. Recent climatic changes are already adversely affecting yield, and the situation can worsen in the future. The insurance schemes in the agricultural sector primarily cover losses incurred due to weather conditions. Farmers are expected to pay a premium amount before the cropping season begins, and they can claim insurance in case of losses caused due to climatic catastrophes.
However, there are a lot of inconsistencies and a big gap when it comes to risk assessment and the actual insurance payouts. The main sufferers are small and marginal farmers who don’t get the right claim amount due to technicalities and lack of availability of complete and authentic data. Insurers recognize this loophole and therefore have switched from indemnity-based insurance to weather-related Index Insurance. Blockchain technology can help immensely by making insurance payouts an automated process streamlined through a smart contract. Also, agricultural-based data can be collected and stored on the blockchain, making index assessment more coherent.
- Life insurance: There are vast possibilities of using blockchain technology in dispersing life insurance payouts. The parties involved create KYC details of the insured on the blockchain containing their complete information such as id proofs, financial records, current and previous policy details, and other crucial particulars. The KYC data stored on the distributed ledger is validated and immutable. The payouts will happen through smart contracts, which will automatically facilitate life insurance claims as per the protocol.
4 leading Insurance Companies using blockchain technology currently
More and more companies in the insurance sector have realized the great potential and the mammoth future possibilities that blockchain technology presents. We now see a rising and vertical trend when it comes to adopting distributed ledger technology.
Let’s have a look at the leading companies that have taken to the blockchain in insurance:
- Lemonade: The US-based insurance company works through a smart contract where the customers can get insured in 90 seconds and get the claimed amount in 3 minutes. They charge a set fee taken from the monthly payments while the rest of the amount is allocated to future claims.
- Fidentia X: Based in Singapore, it is the world’s first-ever marketplace that uses blockchain for tradable insurance policies. Their newly-created distributed ledger, ISLEY, stores information related to customer policies and also provides a complete overview of their policies. It also keeps them abreast with premium dues and maturing policies.
- Fizzy: This French company uses blockchain technology to tackle insurance matters related to flight delays. Based in Paris, it ensures that the travelers are compensated within a couple of hours of flight delay. Again, this company makes use of smart contracts to execute timely payments. The blockchain contains all the user information, which can be accessed to verify customers’ claims.
- Guardtime: It is a leading US-based industry that provides blockchain technology in various sectors such as defense, cyber security, logistics, government, etc. Their Insurwave platform, is a one of its kind and first-ever podium for maritime insurance. They use blockchain technology to undertake risks involved with maritime vessels. This platform already manages 1000 commercial vessels and plans to expand its operations to marine cargo, aviation, and global logistics.
Future of blockchain in the insurance industry
Many businesses have made hay by implementing blockchain technology since its inception. The insurance industry is one of those sectors that can immensely benefit by relying on this ever-evolving technology. We have seen how blockchain has a far-reaching impact. The insurance industry can see a massive turnaround in terms of cost-effectiveness and minimizing risks. We are already witnessing several businesses showing interest in developing blockchain in the insurance industry.
Sofocle’s contribution to smooth deployment of blockchain in insurance with Insurra
Sofocle has recently developed a dedicated mobile app, Insurra, which has been designed specifically keeping in mind the pain points of the insurance industry. Our motto is to reduce dependence on the paperwork and maximise mobile app use where the customers could simply upload their documents and get insurance ready. Our smart contracts are premeditated and triggered when set conditions are met. We have also laid importance on cost-effectiveness, saving time, and also made sure we strictly adhere to the regulations set by the insurance companies. Through Insurra, we have focused on eliminating third-party involvement, executing reliant and immutable smart contracts, and safely storing encrypted data for future reference.
We have already discussed how useful blockchain is in the case of travel and motor insurance. Insurra covers both these insurance-related issues by implementing our well-developed and ever-reliant blockchain technology.
Insurra in Travel Insurance
Our mobile app provides a wide range of customer services, such as information on best policy covers and easy and quick settlements in case of flight delays. We also focus on reducing costs and accelerating the insurance process.
Insurra in Agricultural Insurance
We understand farmers’ anguish when they have to go through a long and complex insurance process and do not get their rightful claim. Therefore with Insurra, we have developed smart contracts between farmers and insurers. These contracts will deploy accurate weather information to the insurance companies. Based on these reports, the farmers will get their insurance payouts.
Insurra in Motor Insurance
We have also delved into solving issues related to motor insurance, and our app will help you self survey your vehicle in case of damage. It will also facilitate uploading required documents along with images of damaged vehicles clicked by you. The data analytics tool will analyze the data provided through the app and suggest a claim amount that will be settled promptly.
With Insurra we aim to provide quick and timely solutions to our customers. Through our blockchain technology, we enable our customers to choose policies best suited to them and ensure hassle-free claim settlements. Get in touch with us to know more about Insurra and how our app can enhance your experience with insurance.