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For years, the traditional insurance business model has proven to be rock solid against changes. Many policies are still printed on paper. Consumers are still calling by phone to purchase new policies. However, the insurance sector is now beginning to imbibe the digital revolution. Emerging technologies are changing the way consumers interact with businesses and how products and services are delivered. Blockchain is one of those coveted technologies.
Strategies implemented by companies such as IBM and Enterprise are helping blockchain push the boundaries of multiple industries including Insurance. Blockchain in insurance would automate the underwriting and claims settlement process, thus making it easier, faster, and convenient.
Blockchain is essentially a decentralized and distributed system. In this particular system, the records and transactions can be exchanged, verified, and signed without the intervention of a central party. Conducting business through such means paves the way for transparency, trust, and security. Something that couldn’t be attained through the traditional way of working.
Imagine a never-ending network of spreadsheets across computers all over the world. Blockchain is the network that is designed to update this spreadsheet periodically. The various blocks on the blockchain consist of digital pieces of information which exist in three parts.
Whenever any blockchain transaction occurs, the process generally includes these steps-
Blockchain technology can offer a myriad of benefits to not just insurance but other industries too. Automation in document transfers, contract term negotiations, and increased cybersecurity are some of the primary benefits of blockchain technology.
Property and casualty insurance includes a variety of insurance such as car, bike, commercial, and home insurance. Significant manual entry is required in processing claims for huge amounts which leaves room for human error. Using blockchain technology could make claims processes faster and cheaper. By using smart contracts and shared ledgers to issue insurance policies, the claims and payment processes can be automated.
The outdated methods of the insurance industry contribute significantly towards potential fraud and errors. To combat this, blockchain can help insurance companies store claims information on a ledger. This would help companies communicate and identify suspicious behavior.
The introduction of blockchain in the insurance sector can have enormous benefits to both companies and their customers. However, just like any other thing blockchain too has its own set of pros and cons.
The advantages of blockchain technology are as follows:
So many processes in the insurance industry are manual and time-consuming. Blockchain can streamline this process by reducing paperwork and reconciliation for insurance contracts.
Blockchain uses cryptography in all its transactions. This makes sure that the transactions you make are authenticated, secured, and verifiable, which ensures to protect customer privacy.
Blockchain allows to collect essential real-time data and conduct in-depth analysis. This would help to speed up the processing of claims and pay-outs.
Smart contracts are software that will be a very useful tool in the claim approval process. These smart cards will also help in immediate pay-outs to the customers once the claims are approved. This software checks for certain transactions in the network and automatically executes actions if pre-specified conditions are met. These smart contracts will reduce paperwork on the back end and will also be cheap to use.
The disadvantages of using blockchain technology are as follows:
While blockchain is a hopeful futuristic solution it comes with its own set of obstacles. Here are some of the disadvantages of using blockchain in the insurance sector.
The increased popularity of blockchain has garnered it some widespread attention. Many new users are embracing this technology every day. But with this increased usage blockchain is becoming more prone to cyber-attacks which ultimately puts customer security at risk.
With millions of transactions made every day, the validity of every blockchain transaction must be considered. This brings into question fraudulent insurance transactions. Therefore, all possible measures would be required to be undertaken in order to protect the integrity of customers’ data.
The increasing popularity of blockchain will result in the technology becoming expensive. Insurance companies might find it difficult to afford this new technology for everyday processes.
Blockchain is available in the public domain. This means that every blockchain transaction can be traced back to its original block. The information being available to the public can be a potential privacy threat to the customer. Criminals can access this data and exploit it to their advantage.
Insurance companies must adhere to the current regulatory and legal hurdles before fully adopting blockchain technology. There are a number of blockchain features that are in violation of current insurance laws. For instance- customer’s personal data and their policy information on the blockchain must comply with existing privacy and data protection regulations.
While blockchain technology looks promising, it is still in its infancy. No one can predict the true power of this technology. Blockchain can provide insurers with better tools and make insurance processes convenient for users.
However, the introduction of the technology would demand the old standards and insurance processes to be optimized to. The insurance industry has high privacy and security concerns and with rapidly growing customers, these concerns are bound to grow.
Insurance companies must provide clear regulations in order to safely utilize blockchain technology. With time and a better understanding of the technology, these changes can be implemented. But once blockchain comes into its own, this technology is sure to transform the insurance industry giving it a new meaning and upgrade.