Blockchain in Insurance

Insurance has been one of the industries which have evolved over time. Though Insurance has been a late adopter in terms of technology. Since 2000 Insurance has adopted a plethora of innovative approaches to augment its value chain. IT has become the backbone of the insurance industry.

Gone are the years when premiums for insurance were calculated manually or with limited IT infrastructure. All functions of the Insurance value chain are currently supported extensively by IT from premium calculation, customer acquisition, policy management to claims handling.

Blockchain offers use cases for insurance operations in areas like fraud detection, pricing, reducing administrative cost, innovating insurance products and services for growth. Some of the challenges faced by insurers today are growth in mature market and cost pressures with the advent of aggregators and digital channels. Such challenges can be handled with the use of Blockchain technology. Implementing blockchain has to be part of a long-term vision as it can leverage network and cross-network effects over long-term.

Blockchain

Blockchain is a distributed ledger to store static content or dynamic transaction data without central coordination by using a consensus-based mechanism to validate entries made in the blockchain. It is best suited for applications requiring transparency and documenting of timestamp/author.

Decentralized validation: when new transactions or new static data are added into the blockchain, approval from others in the blockchain is required. When they trust the transaction, the data pack is added into the blockchain

Redundancy: The blockchain data is normally present in multiple nodes which means a copy of same data is present in multiple locations or machines in the network

Immutable storage: In blockchain, each block is linked in previous blocks and data is registered in blocks using digital footprint consisting of timestamp/author. Hence data stored in blockchain is highly protected from any attacks or practices hackers tend to use.

Encryption: digital signatures based on cryptographic private and public keys enable participants in blockchain to trace the authenticity and ownership of data

Use Cases for Insurance industry

Customer engagement: Customer data stored in blockchain is fully protected against any data breach threats which gives customers the trust on the security of personal data. The authority to manipulate data rests with only authorized entities and each transaction would have a digital signature. Blockchain can improve customer engagement by providing more transparency and perceived degree of fairness in premium calculation and claims handling

Claims Leakage: Claims leakage is one the areas where insurance companies lose a lot of money. Blockchain through its distributed ledger system which is cryptographically protected can help in reducing the instances of claims leakage

Emerging Markets: In emerging markets, blockchains with smart contracts can be applied to micro insurances to offer them at low administrative and handling charges.

Fraud Detection: Blockchains can help in reducing fraudulent customers and claims as each transaction are verified, documented and available for inspection at any point in time.

Roadmap for Blockchain in Insurance

Blockchain is a digitization technology which could transform the strategy of insurance companies in future. But there are numerous challenges for successful implementation in terms of technology and regulations. Blockchain requires huge hardware for complex computation, the space required for blockchain etc. The regulations are yet to fall in place for blockchain applications. Starting off with foundational research in blockchain would put insurance companies to a position wherein they can leverage benefits from blockchain use cases and reap profit from technology’s benefits in future

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