Blockchain Insurance- Streamlining Insurance Process
” Blockchain in Insurance : Simplifying Claim Settlement Process “
Blockchain unlocks the potential to bring trust and transparency across various business processes. The 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 Accenture’s research, 33% of the insurance companies are deciding to implement blockchain in the coming two years.
By eliminating the paper-based contracts, reducing turn-around time and detecting fraudulent claims, blockchain can significantly transform the insurance processes.
This article will help you understand how blockchain technology can reconstruct the insurance process by answering the following questions:
- How can blockchain technology streamline the insurance process?
- How can blockchain technology resolve the current challenges faced by the insurance industry?
- What are the various use cases of blockchain technology in the insurance industry?
Let’s begin by understanding how blockchain can help to streamline insurance processes.
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How can blockchain technology streamline the insurance process?
In order to implement blockchain technology in the insurance industry, we have analyzed that the process could be divided into the following three phases:
Phase 1: Authorized Insurance Providers Register on Public Blockchain
There are multiple types of insurances, such as:
- Life Insurance
- Car Insurance
- Health Insurance
- Travel Insurance
- Home Insurance
Stakeholders involved in the first phase of the blockchain insurance process are:
- Brokers, who act as an advisor and rate the insurance policies offered by insurance companies.
- Insurance Service Providers, who provide insurance services.
- Policy Portal Admins, who provide 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 stakeholder’s public key to decode the transaction’s unalterable records.
In the first phase, the process could have four different applications for different stakeholders:
Authorized insurance providers who provide different insurance types can add the relevant insurance policy details on the public blockchain.
For example, if a health insurance provider has to add the plans, they would save details like the following on the public blockchain:
- 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
- terms and conditions
Insurance brokers involved in the blockchain insurance process would not work as an intermediary, but as advisors. By accessing the details saved by insurance providers on the public blockchain, 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.
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.
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Phase 2: Consumers Search and Buy Policies
The stakeholders involved in the second phase of the process are:
- Consumer who searches for the right insurance policy and buys it.
- Insurance Companies that get notified and add consumers to their private blockchain.
In the second phase, the insurance process could have two applications for different stakeholders:
The consumer would first search for specific insurance policies by using their mobile app. The search request would trigger the smart contract to fetch insurance policy details saved on the public blockchain. Consumers can get all relevant information stored by insurance service providers quickly from the blockchain.
For example, if a consumer wants to buy a health insurance policy, 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 to the distributed database, IPFS, such as:
- address proof
- age proof
- passport size photos
- identity documents
- income proof
These documents will have their addresses hashed and stored on the private blockchain.
As soon as the consumers buy the insurance plan, insurance companies get a notification. The insurance companies start verifying the consumer’s details and adding the consumer on their private blockchain after the validation.
A receipt of acknowledgment is sent by insurance providers to the consumers informing that the plan has been activated.
Because the records of transactions stored on blockchain are immutable and traceable, there will be no insurance fraud chances.
Phase 3: Consumers Request for the Claim Amount
The stakeholders involved in the third phase of the blockchain insurance process are:
- 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, which 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, suppose someone meets with an accident and wants to avail of the accidental claim amount from the insurance company. In that case, 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 on the private blockchain, such as:
- claim-related documents, etc.
The verification documents with the respective transaction ID get saved on the private blockchain, which will be visible to all stakeholders within the network.
Once the customer raises the claim requests and adds the supporting evidence documents on the blockchain, the auditors/loss adjuster gets a notification and starts the verification process.
Auditors perform in-depth verification and find out if the evidence submitted by the consumer is valid or not. If the evidence pieces are found to be accurate, then auditors validate the claim request and add related details to the blockchain.
After the loss adjuster/auditor validates the request, the insurance company sends the claim account’s breakdown 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.
Along with streamlining the insurance process, blockchain technology can also help the insurance industry resolve other challenges. Let’s take a look at how it does so.
How can blockchain technology resolve the current challenges faced by the insurance industry?
There are many challenges which the insurance industry faces today, such as:
- Paper-based contracts
- Time-consuming process
- Insurance frauds
- Lack of transparency
Blockchain technology can help the insurance industry resolve all these challenges efficiently. Let’s discuss it in detail.
Undoubtedly, insurance companies have begun to adopt digital technology to register a policy and process the claims, but many companies still maintain paper contracts to manage 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.
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 an intermediary’s need 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.
Since the entire process has multiple data sources present in different systems, the chances of fraudulent claims have also increased. The total cost of insurance fraud, excluding health insurance, in 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, stakeholders can keep an eye on every activity of the process due to the blockchain’s traceability feature.
Lack of Transparency
As of now, the different stakeholders cannot 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 network members 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.
Now that you understand how blockchain technology resolves the challenges faced by the insurance industry, let’s take a look at some of its use cases.
What are the multiple use cases of blockchain in the insurance industry?
Blockchain technology in the insurance industry has numerous use cases. Here, we have listed three use cases of blockchain in insurance:
- Fraud Detection
- P&C Insurance
- Health Insurance
Let’s discuss them in detail.
In the insurance industry, blockchain technology has the potential to allow better coordination between insurers, which can help them detect frauds efficiently.
With blockchain technology, insurers can:
- record permanent transactions on a distributed ledger.
- ensure data security with fine access controls.
- collaborate and identify any strange patterns as all information related to claims will be saved on a shared ledger.
- eliminate the risk of double booking, or multiple claims
- reduce counterfeiting via digital certificates
Use Case: Etherisc
Etherisc is a blockchain technology startup that has built a decentralized insurance platform. It uses smart contract technology to automate insurance transactions and processing. It also allows the development of decentralized insurance applications to provide more efficient insurance purchasing and selling abilities at reduced operational costs. The Etherisc smart contracts can verify claims independently with the help of multiple data sources.
Property and Casualty Insurance requires considerable manual data entries and coordination. Hence, there can be many errors. Blockchain technology can entirely transform the way of digitally managing, tracking, and insuring physical assets.
Blockchain Technology can allow insurers to:
- digitally track and manage physical assets
- automate claims processing through smart contracts by systemizing business rules
- provide a permanent audit trail
- turn paper contracts into code that’s programmable to automate claims and figure liabilities
- save operating costs
- speed up the payment process
Use Case: Insurwave
Insurwave is a blockchain based marine hull insurance platform launched in 2018 by a collaboration of EY, Guardtime, A.P. Møller-Maersk, Microsoft, and ACORD. The platform provides real-time data on:
- ship location
- commodity condition
The platform also detects and notifies when the ships enter high-risk areas like war zones. As it provides a reliable store of data, it can help speed up the process of making and verifying claims.
The healthcare insurance industry is one of the most inefficient, fraud-prone sectors today. It faces multiple challenges with which blockchain technology can help significantly.
With blockchain technology, healthcare insurers can:
- maintain patient privacy
- give data sharing controls to patients
- store time-stamped medical records with cryptographic signatures on a shared ledger.
- audit data across institutions as all changes will be recorded on the distributed ledger.
- enable fine permission settings to ensure regulation compliances
Use Case: MedRec
Introduced by MIT, MedRec is a decentralized medical records management system that indexes healthcare records on the blockchain and allows access to authorized individuals. It helps to ensure the privacy of patients, along with easing the information verification process.
The first implementation of MedRec was done by using the Ethereum blockchain platform. Presently, MedRec 2.0 is carried out and tested on the Beth Israel Deaconess Medical Center’s database. The code is open-source, and the developers of MedRec are working with new healthcare IT center to develop a deployed network.
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.
|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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