Blockchain technology is radically changing the operations of the insurance industry at a faster rate with quick verifiable data exchanges, transparency among all the parties and transactions which is backed up with a high level of security and trust. It is a distributed open ledger in which transaction and records can be signed, exchanged add and verified without being controlled by a central organization or group. This technology can be considered as the next revolution for mankind. This will allow the involvement of additional stakeholders such as brokers, vendors, reinsurers, and ecosystem partners. This will eventually lead to a system that provides the client with confidence in the security and accuracy of their data.
Banking and capital markets already have exchange listings, so there remains a chance/ opportunity for such sectors to flourish with blockchain technology. This is not the case with Insurance Industry. They do not have a natural exchange over which then blockchain technology could have been applied. But the hope still remains of a potential disruption by the blockchain. The main obstacles that need to be surpassed are for insurers to connect all the relevant stakeholders involved in insurance transactions, with their developed technology and in order to make a blockchain investment meaningful enough, the insurers must be mandated to look for high volume transactions as use cases.
Fraud Reduction and Risk Mitigation
With the already available features of blockchain as a public ledger, it becomes quite like a cake walk to spot out & eliminate errors and detect fraudulent activity. As the complete historical record is available, verification of the authenticity of customers, policies, and transactions becomes quite easy and less tedious. There are many insurers already benefiting the first mover advantage by using blockchain technology to cut down fraud and risks vis-a-vis international payments with multi-currencies. Health insurers and US regulators consider blockchain as a powerful weapon to curb Medicare frauds.
Internet of Things
As the human is becoming more device dependent, the volume of data also increases drastically which has to be hence given utmost management to sustain proper functioning of the system. This simplified and well arranged will come handy for the insurers so that they can develop actuarial models or products like usage-based insurance (UBI) model with more accuracy to it. Using blockchain we will be able to manage bulk, complex networks to controlled by each other on a peer-to-peer basis, without the need for a centralized data center system which may be vulnerable to attacks leading to data leaks and frauds.
Take the case of an insurer who is looking to put on an equal amount of risk to two separate insurers. Here if we used the blockchain technology of distributed open ledger then if any of the insurers tried to offload some of its portions to a subsidiary of the other reinsurer would be easily seen and notified by the other members of the network. This can also help to increase the confidence levels of the insurers as they payout claims maintaining the capital exposure to specific risk ratio sustained. Other benefits that can be availed herein with the blockchain include more perfectly calculated reserves based on actual participating contracts and automatic update in calculation after update in data can be obtained. Also, Insurers will achieve more ease in moving capital with well-developed transparency with known risk factors, capital efficiency and capital requirements for compliance.
2 Success Stories of Blockchain Powered Insurance
A global leader in insurance broking and innovative Risk Management Solutions, Marsh, collaborated with IBM to make happen the insurance industry’s first of its kind blockchain solution for proof of insurance. With the usage of blockchain Technology, both the parties are working from complicated and manual, to streamlined and transparent. This aims to ease the clients and allow them to speed up the essential business functions. As Proof of insurance is the key business requirement in many industries, this blockchain solution is expected to allow nesting of networks to further develop the verification process on a broader sense.
AIG and Standard Chartered
AIG and IBM positively accomplished the trial of the concept of “smart-contract” multinational policy for Standard Chartered Bank PLC. This is also first of its kind in its relevant industry using blockchain’s digital ledger Technology. The system will be used to facilitate the sharing of real-time information for the main policy which is written in the UK headquarters and 3 local policies in the US, Singapore, and Kenya. The system has helped lower the burden of insurance companies from getting rid of international regulations, paperwork, and payment terms.
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