“Blockchain in Insurance: Simplifying Claim Settlement Process”
Blockchain unlocks the potential to bring trust and transparency across various business processes. 2016 World Economic Forum’s report on emerging technology trends highlighted the blockchain as the “beating heart” of the global financial system. The report also revealed that blockchain is expected to account for 10% of global GDP by 2027.
Among the various financial sectors, Blockchain can revolutionize the insurance industry by streamlining time-consuming insurance processes. According to a research done by Accenture, 33% of the insurance companies are deciding to implement blockchain in the coming two years.
From eliminating the paper-based contracts to reducing turn-around time, and detecting the fraudulent claims, blockchain can bring a significant transformation in the insurance processes.
Let’s understand how the Blockchain technology could reconstruct the insurance process.
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How blockchain could streamline the insurance process?
To implement blockchain in the insurance industry, we have analyzed that the process could be divided into following three phases:
Phase 1: Authorized Insurance Providers register on public blockchain
Insurance can be of different types including-
- Life Insurance
- Car Insurance
- Health Insurance
- Travel Insurance
- Home Insurance
Stakeholders involved in the first phase of the blockchain insurance process:
- Brokers who act as an advisor and rate the insurance policies offered by insurance companies.
- Insurance service providers who offer insurance services.
- Policy portal admins who offer insurance quotes to the customers.
Every stakeholder involved in the process would have their private keys to add records to the blockchain. If someone else in the network wants to access the data stored by a specific stakeholder, they would need the public key of that stakeholder to decode the unalterable transactions records.
In the first phase, the process could have four different applications for different stakeholders:
1. Insurance Providers:
Authorized insurance providers who provide different types of insurance can add the relevant insurance policies details on the public blockchain(3).
For example, if a health insurance provider has to add the plans, they would save details like term length, date of validation and expiry, coverage amount, no claim bonus, co-pay percentage, healthcare centers covered under the policy, types of treatments available in a specific plan, and terms and conditions, on the public blockchain(3).
Insurance brokers involved in the blockchain insurance process would not work as an intermediary, but as an advisor. By accessing the details saved by insurance providers on the public blockchain(3), brokers can give a rating to the insurance policies added by them.
The rating provided by the broker may help insurance companies and consumers to make informed decisions.
3. Policy Portal Admins:
The role of policy portal admins is to fetch the insurance plans from the blockchain and add them to their portal. Using blockchain, the time policy portals spend to contact insurance providers manually will be reduced.
Phase 2: Consumers Search and Buy Policies
Stakeholders involved in the second phase of the process:
- Consumer who searches for the right insurance policy and buys it.
- Insurance Companies that get notified and add consumers to their private blockchain(2).
In the second phase, the insurance process could have two applications for different stakeholders:
The consumer would first search for the specific insurance policies using their mobile app. The search request would trigger the smart contract to fetch insurance policies details saved on the public blockchain(3). Consumers can get all relevant information stored by insurance service providers quickly from the blockchain.
For example, if a consumer wants to buy a policy for health insurance, they would search for it. With smart contracts, a consumer can get the search results related to health insurance quickly.
After a consumer selects the insurance plans from a specific insurance provider, the next step is to buy the policy.
While buying a policy, consumers would have to upload the necessary documents like address proof, age proof, passport size photos, identity documents, and income proof in the distributed database, IPFS(1) having addresses hashed and stored on the private blockchain(2).
2. Insurance Companies:
As soon as the consumers buy the insurance plan, insurance companies get a notification. The insurance companies start verifying the details submitted by the consumer and add the consumer on their private blockchain(2) after the validation is complete.
A receipt of acknowledgment is sent by insurance providers to the consumers to inform that the plan has been activated.
Because the records of transactions stored on blockchain are immutable and traceable, there will be no chances of insurance frauds.
Phase 3: Consumers request for claim amount
Stakeholders involved in the third phase of the blockchain insurance process:
- Consumers who require claim in case of any damage, loss, medical treatment, or accident.
- Loss Adjuster/Auditor who verifies if the consumer is liable to get the claim amount or not.
- Insurance Company provides the claim to the consumers.
In the third phase, the insurance process could have three different applications for different stakeholders:
In case of any accident, damage, or medical treatment, a consumer requests the claim amount from the insurance provider.
For example, if someone meets with an accident and wants to avail the accidental claim amount from the insurance company, they have to undergo the claim request procedure for its approval.
To get the claim amount, consumers would have to share the documents supporting evidence, photographs, and other claim-related documents on the private blockchain(2).
The verification documents with the respective transaction ID get saved on the private blockchain(2) which will be visible by all stakeholders within the network.
2. Loss Adjuster/Auditor:
Once the customer raises the claim requests and adds the supporting evidence documents on the blockchain, auditors/loss adjuster get a notification and they start the verification process.
Auditors undergo in-depth verification and find out if the evidence submitted by the consumer is valid or not. If the pieces of evidence are found to be accurate, then auditors validate the claim request and add related details to the blockchain.
3. Insurance Companies:
After the loss adjuster/auditor validates the request, the insurance company sends the breakdown of the claim account to the consumer.
Once the consumer receives the breakdown of the amount, the claim money is automatically transferred to them with the help of smart contracts.
In this way, blockchain can reduce the turnaround time by simplifying the entire insurance process.
Here are the current challenges faced by industry which can now be eliminated using blockchain insurance solution
- Paper-based contracts
No doubt that insurance companies have started to adopt digital technology for registering a policy and processing the claims, but many companies still maintain paper contracts for managing the policy. Paper-based contracts are prone to errors and require human intervention.
Solution: A blockchain-based application uses smart contracts that contain business logic and remove the need for intermediaries by automating the validation processes.
- Time-consuming process
Filing an insurance claim is a tedious and prolonged process for the consumers as they have to approach multiple intermediaries for approval. Due to insufficient automation and transparency in the system, the claim process may get delayed up to six months, traumatizing the consumers.
Solution: A decentralized network of insurance entities removes the need for intermediaries by adding a layer of trust and transparency to the system. Compliance built-in smart contracts, can automatically verify policyholders, claim process, and insurance providers. Because blockchain enables controlled data disclosure, the stakeholders will not have to approach one another for sharing the information. So, blockchain could reduce the turnaround time.
- Insurance Frauds
Since the entire process has multiple data sources present in different systems, the chances of fraudulent claims have also increased. The total cost of the insurance fraud excluding health insurance, in the the US is estimated at $40 B a year.
Solution: Since insurance claims are moved on an immutable ledger, blockchain can make it impossible for anyone to alter the information. Moreover, it is possible for stakeholders to keep an eye on every activity of the process due to the traceability feature of the blockchain.
- Lack of Transparency:
As of now, it is impossible for the different stakeholders to get the information seamlessly due to the lack of transparency. The inability of involved participants to access the data quickly leads to delays of weeks or months.
Solution: Blockchain brings transparency by allowing all members of the network to access the information at the same time. It is possible to provide “write/view/modify” access to the stored data to multiple stakeholders using blockchain.
The blockchain is a promising technology, having the ability to reconstruct the insurance industry with its features like transparency, traceability, and security. If you are looking out for a blockchain development company to build a blockchain-based application, contact us and discuss your requirements with our team of experts.
|1. IPFS||Stands for Inter-Planetary File System, a distributed database used for storing and sharing data.|
|2. Private Blockchain||Allows only authorized participants to store and exchange the information within the blockchain network.|
|3. Public Blockchain||Allows any participant across the world to store and exchange the information.|
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