How Insurance Industry is Using Blockchain Technology?

📖 Learning

ATHUL C K, Ayush Chaudhary, Atish Ranjan Das

Aug 30, 2022 — 6 min read

A distributed database system that can sign, exchange, and verify transactions and records without the control of a central party is called a Blockchain. This open and secure way of conducting business transactions creates a level of security, transparency, and trust not previously possible. It enables additional stakeholders such as vendors, brokers, ecosystem partners, and reinsurers to interact with each other.

Also, it creates a more connected ecosystem that makes sure of confidence in the accuracy and security of the data. Blockchain enables parties to maintain contracts, comprehensive assets, and data ownership records without relying on intermediaries. It can be integrated with other technologies such as smart contracts to enable insurers to develop innovative products and automate processes. Let us discuss blockchain in the insurance industry.

Emerging technologies changed the way consumers interact with businesses and how services and products are delivered. Blockchain has the potential to entirely change the way insurance is contracted. It optimizes transparency, security, and efficiency for the whole insurance industry using public ledgers and fortified cybersecurity protocols. This technology is already used in many sectors including homeowners, trading renters, and travel insurance.

How Does Blockchain Work?
Role of Blockchain In The Insurance Industry
Property & Casualty Insurance
Health Insurance
Risk Prevention And Fraud Detection
How Can Blockchain Help Insurers Understand Basics Rights?
The Impact of Blockchain Technology

How Does Blockchain Work?

Blockchain is different from a traditional centralized computer database system. It is decentralized and its records are maintained and distributed on many several computers at once. The records of blockchain are processes distributed ledger. The users have access to one shared copy of this ledger.

When adding information, every new block of information is chained to the previous one in an unbreakable and permanent sequence by utilizing advanced cryptography. The new blocks will be confirmed by different computers in the system, before adding to the ledger. Some unique keys are needed to access individual blocks. If someone is attempted to access a block of information without a correct key, the system will reject it.

Role of Blockchain In The Insurance Industry

Blockchain helps to reduce friction in business processes by utilizing solutions such as smart contracts and plays a huge role in the Insurance industry. It also facilitates and automates DLT (Distributed Ledger Technology) networks. Blockchain makes data reconciliation easier. Also, it improves accuracy and eliminates the time spent uncovering information. It allows cost reductions, efficiency gains, and transparency throughout a value chain.

That makes more positive customer experiences through aggregate improvements in accuracy and speed. For example, it shortens the claims cycle via improved efficiency can lead to higher customer satisfaction. Also, it enables smoother interaction between customers and insurers by giving faster and better access to data.

Property & Casualty Insurance

Property and Casualty Insurance mainly includes commercial, auto, and home insurance. Manual entry is required for processing claims. In that case, there is a possibility of human error. Blockchain technology will make claims processes five times cheaper and three times faster by utilizing smart contracts and shared ledgers to issue insurance policies. The payment processes and claims can be automated to make them more accurate and efficient. Smart contracts can change paper contracts into programmable code. It will help to automate the claims process.

Health Insurance

In the Health Insurance industry, there are so many inefficiencies such as inaccurate record-keeping, manual claims processes, and duplicate medical records. They need to be improved in terms of accuracy and efficiency. So, the interoperability of devices and systems is important to assuring that medical professionals give sufficient care to patients. But, it is not easy to achieve interoperability within a medical system successfully.

The medical records can be cryptographically conserved and shared between health providers. It will promote interoperability and increase security within the health insurance ecosystem. The medical records can be stored safely and control of medical data can be returned to patients. It will allow the industry to save money and increase the satisfaction of patients.

Risk Prevention And Fraud Detection

FBI reported that the cost of insurance fraud in the U.S. is more than $40 billion a year. The outdated nature of the processes in the insurance industry creates a possibility of potential fraud and error. Blockchain helps to prevent this by storing information about claims on a ledger.

How Can Blockchain Help Insurers Understand Basics Rights?

The finance functions and claims are high-value areas in insurance where blockchain could be useful. The blockchain will be more beneficial in the processes that require continuous reconciliation with external parties.

Currently, many insurers apply a smart contract along with blockchain. By creating an insurance contract that pays in these situations, An insurer is able to process transactions without human intervention and improve customer service. Blockchain will help insurers deliver on some of the basics. They are given below.

Streamlined subrogation
Transparent claims process
Shared loss histories are used to obtain data-driven insights about forthcoming customers for more complex pricing
Supports more efficient payments between third parties and insurers during the claims process.

The Impact of Blockchain Technology

The insurance industry is famous to adopt new and more efficient processes. Blockchain can provide so many benefits to both companies and their customers. But, there are also some limitations. Some of the benefits and limitations are given below.

Benefits

Most of the processes are manual and time-consuming. Blockchain will streamline reconciliation and paperwork for insurance contracts. It can increase efficiency.
Cryptography in blockchain makes sure that transactions are authenticated, secure, and verifiable. It will ensure the privacy of customers and increase trust.
Real-time data collection and analysis are possible through blockchain. It will speed up payouts and claims processing.
Smart contracts are another benefit. These contracts include a logic that is automatically implemented when predefined conditions are met. It reduces paperwork.

Limitations

There are so many new users every day on the blockchain. So, there is a possibility of a cyber attack.
There is a possibility of a loss of integrity of data. Blockchain needs to protect against fraudulent activities to make sure the integrity of data.
The cost of operations is high. When blockchain becomes more popular, it will become further costly for insurance companies to embrace this technology in everyday processes.
Blockchain is publicly available in cryptocurrency. That means each transaction can be tracked to its original block. So, it is possible to access information by criminals who looking for exploiting the information.

As the industry has high security and privacy concerns, the blockchain needs to be further developed to meet the standards of insurance companies. Also, insurance companies need to provide clear regulatory frameworks for the safe use of blockchain technology. Once these requirements are met, the blockchain has the potential to change the insurance industry for companies and their customers.

Conclusion

The use of blockchain technology in the insurance industry is still in its early stage. But its benefits and use cases over time have proved its need and importance in the industry. Blockchain is helping the insurance industry to reduce its operations costs through automated verification procedures, smart contracts, and blockchain-based payment systems.

Thus, blockchain technology is revolutionizing the insurance industry in many ways by making the processes more automated and ensuring people increased transparency in the system.

FAQs

What is Blockchain?

A distributed database system that can sign, exchange, and verify transactions and records without the control of a central party is called a blockchain.

How can Blockchain help the insurance industry?

Blockchain helps to reduce friction in business processes by utilizing solutions such as smart contracts.

What are some of the most taken insurance policies?

Life Insurance.
Health Insurance.
Long-Term Disability Coverage.
Automobile Insurance
Property Insurance

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