The insurance industry had long faced many challenges due to centralized methods of operation when the insurance industry started moving to digital transactions. These challenges include complex compliance issues, limited growth in the mature market, payment transaction, data verification, and fraudulent claims activity. Aside from that, the cost and security of digital monetary transactions, streamline processes and sensitive information are growing concerns.
In order to keep delivering more attractive tailored insurance services and products, insurance companies have to cultivate and handle a large amount of data. This can only be done if the data is clear and visible, and blockchain is capable of making it happen.
When it comes to money, trust is considered the top barrier. However, there’s an ongoing trust crisis within the insurance industry. Lack of trust, combined with high costs and inefficiency has led to an enormous level of underinsurance within our society.
With blockchain, data transparency grant consumers access to real-time data, which facilitates trust and assurance for participants.
Current ways of processing claims have proved to be inefficient and lengthy to both consumers and insurers. While understanding and adhering to contract terms is essential, typical consumers find insurance contracts long and confusing. On the other hand, insurance companies are having a bad time dealing with insurance frauds.
The built-in IF/THEN conditions of smart contracts can enable a responsive, fast and transparent way of making insurance claims. Insurance contracts will be encoded and recorded on the blockchain. When a claim is submitted, the blockchain could check the validity of claims against its data record and release the insurance payment if all the conditions are met. For example, if multiple claims are submitted for the same incident, the blockchain network would recognize and reject invalid claims.
What’s even better is that the entire process requires no human interaction, which can reduce processing time considerably and avoid any interference.
As mentioned above, fraud has been a serious challenge for insurance companies. A report from McKinsey and Company revealed that 5 to 10 percent of all insurance claims are fraudulent, which costs more than $40 billion a year. This makes data security and validation a crucial issue for insurance companies,
Blockchain securely records and protects historical records regarding customers, policies, and transaction, which can be used for verification. However, for the system to work, all parties involved in the insurance contract must be willing to share their info to the blockchain.
According to a report from EY on blockchain and insurance, “the insurance industry must make investments now to be in a position to take advantage of efficiencies and opportunities blockchain technology can deliver long term.”
Some insurance organizations are already starting to embrace blockchain, including Swiss Re, Aegon, Allianz, Munich Re, and Zurich.
By applying blockchain into operation, the insurance industry will be able to save considerable time and money, while also improving customer satisfaction.