Blockchain is basically a data structure consisting of transactional information and at the same time enhancing transparency, security and de-centralization. It is a type of spreadsheet and a chain of transactional records stored in the form of blocks together making the blockchain and spread over many computers, each of which will have a copy of the same.
This technology is emerging faster in the Banking and financial services industry globally and creating a lot of buzz and this industry primarily deals with a lot of transactional data. In the insurance industry specifically blockchain can be used in solving old and continually recurring challenges as there is greater need for this sector to change its traditional approaches and evolve as per the changing needs and dimensions of contemporary times.
Insurance and Reinsurance companies needs to adhere to stringent regulatory and compliance frameworks, manage fraud extensively, account numerous transactions among multiple parties and handle large amount of data and analyse them to gain meaningful insights for purposes like pricing, smooth operations and customer service.
The functioning of such a company is complex and some of the challenges mentioned above are perennial and can be addressed by the help of blockchain technology. Although the technology is in its early stages of implementation in the insurance sector, some insurers globally have already started adopting it in few areas to solve these challenges.
In this article we will discuss how in some of these areas the blockchain Technology can be suitably implemented to get an edge.
- Security: Using the system of public ledger blockchain can eliminate suspicious and duplicate transaction by logging each one of them. One important feature of blockchain technology is a decentralized digital repository which can match the current transaction with the historical ones on parameters like authenticity of customer, policy, transaction and the process. It thus enhances a level of security which not only eliminates fraud from the system but also makes it difficult for hackers and trespassers to get into the system and tamper or steal the data. We all know that these two areas are major concern for an insurer as per leading reports almost 10 percent of all claims an insurer receives are fraudulent and this is certainly having a great impact on the profitability and financial numbers of the insurer. Also, data theft and cyber attacks have are increasing by leaps and bounds and insurers are strictly regulated in term of customer and other sensitive data. Blockchain technology can surely provide enhanced security and safeguard the multiple transactions the insurer is subject to.
- Transaction: We have already discussed about the security part in above section. Now we will understand the multiple transactions the insurer is subject to and the role of the blockchain technology in simplifying and de-centralizing the same and make lives of insurers easier. Insurers transact in large volumes and frequency with third parties like customers, intermediaries, reinsurers, banks and investment firms. Blockchain not only helps reduce the administrative costs through automated verification and authentication of payment income and outgo from any of the concerned parties but also simplifies the retrieval and viewing of any past transaction as registered in blocks. Using blockchain technology insurers can handle enormous volumes of transactions as it will be essential for them to do so in this age of increasing digitalization and bite sized insurance products.
- Data: With the increasing number of smartphones and connected devices insurers need to collect, clean, process and analyse enormous amount of data. With the new pay as you go products coming in motor segment and lifestyle-based products in the health segment the volume of data is set to increase many folds in the coming years. Blockchain technology can store static records and data using the decentralization concept separately on each computer system, it requires very less central co-ordination and thus is quick and can be viewed by all relevant stakeholders. Data is registered in units which are the building blocks of the blockchain and creates a digital fingerprint with date and time stamp which enhances security as well as transparency.
- Contracts: Insurance is nothing but a contract between the policyholder and the insurer. With passing time, the way of interaction between the consumer and insurer has changed a lot, nowadays there are tech savvy millennial customers who engage in smart insurance contracts. Online application of insurance and online issuance of policy within minutes is the new norms today. Using blockchain technology real time information can be connected from multiple systems across electronic or physical documents which can trigger various processes like claims, Commission payments, reimbursements and renewal premium receiving etc. easy for the customer and creates a goodwill and great impression of the insurer. It saves time and money for the insurer and at the same time provides and exciting experience to the customer.
- The areas we have mentioned in the above paragraphs is not the end but just the beginning this technology can help insurance companies. In underwriting blockchain can help with improved risk assessment and pricing accuracy. In reinsurance it can help various calculations like reserving and liability assessments.
All in all we can say that blockchain is one technology we will be definitely seeing as a game changer in coming years for the insurance industry which is grappled by less growth in mature markets like US and less penetration in developing markets like India.