By- Sanil Basutkar, Co-founder at HealthySure
While the cryptocurrency industry today might be seeing a downward trend in its prices
and demand, the underlying blockchain technologies still have untapped potential and
have use cases across different industries. Blockchains have certain unique elements that
can particularly transform the way financial institutions operate. The insurance industry
too, which has traditionally been a slower adopter of digital disruptions can benefit from
these features. Of the many features of blockchains, the following, in particular, are very
critical for blockchain applications in insurance.
Immutability – Immutability is the ability of data to not be tampered with. Immutable
transactions make it impossible for any entity to tamper, manipulate, or alter data stored on the blockchain network. Blockchain data and transactions can be considered immutable.
Decentralized – Blockchains are generally decentralized and don’t need a governing authority. There is no central authority maintaining the network but it is distributed among
the network user nodes. Decentralized cloud storage is also a fraction of the cost of
centralized cloud storage.
Security – Blockchain transactions can also involve cryptography to secure information.
Information can be converted to alphanumeric values using mathematical algorithms. These are called hashes and act as a unique identifier for all data. All the blocks in the chain come with a unique hash of their own and contain the hash of the previous block. So, tampering with the data will mean changing all the hash IDs, which will almost be impossible. Hashing is also irreversible and therefore information can be maintained confidentially.
What are the blockchain use cases in insurance?
Fraud Detection – Insurance companies in a lot of cases rely on the previous history of claims to insure. This information can be manipulated and as a result the insurance company underwriting can suffer losses. Frauds also happen when claimants make multiple claims for the same incident. Claim information can be stored on a blockchain and subsequently tagged to the claimant identifier. This will help insurance companies fight off fraud but will require intervention on an industry level to enable collaboration.
Claim Settlement – Blockchain can automate claims by verifying coverage and claim
settlement through smart contracts. It will thus lower administrative costs for insurance
companies. Since information on a blockchain ledger is independently verifiable between
parties, this lifts pressure off of the claimant to prove facts.
Lower insurance cost – Blockchain’s immutability and security can help insurance
companies lower the cost of insurance as there is additional comfort. For instance,
business processes that use blockchains can ensure there is digital evidence that can be used for claims. Marine insurance, which includes coverage of loss during transport of goods and properties, can potentially benefit a lot. Logging in business processes on a blockchain will ensure that information is not tampered with and as a result, insurance companies can bring down the cost of these products as there is greater comfort in underwriting and providing exclusions.
New insurance products – Insurance companies can offer insurance products, that were earlier impossible to offer as there is a tamper-proof digital trail available to give underwriters comfort. This along with technologies such as IoT and AI can bring new products to the markets.
What is the future of blockchain in insurance?
While it’s still early days for blockchain in the insurance industry, there are some promising
use-cases and applications for it. Insurtech start-ups working on blockchain technologies
would need significant investments to work on these use cases along with traditional tech
and insurance giants.
Insurance companies need to set up standards and processes related to blockchain
technology. While these technologies can provide insurance companies with tools to share
and collaborate data, the companies must be willing to work with each other.