By Shree Sule, Lead Consultant, Altimetrik
Today, the technologies related to the insurance sector are not as developed as other parts of the fintech market. The complexity of technology used within insurance sector lags behind the banking sector. However, that’s not the only thing that’s concerning the insurance sector. Today, the biggest worry in this sector is fraudulent claims and unlike any sector, the insurance sector is extremely vulnerable to this.
The below figure shows the revenue loss incurred due to fraudulent activities:
Process flow policy registration today:
As shown in the above figure once the customer enters his/ her details like age, past history with any chronic health issues etc., the insurance amount is calculated depending on the details entered.
As the proposal form moves through multiple hands there are cases where a fraudulent activity can take place, e.g. like a sales personal to up his percentage can forge your signature to broker an additional policy on behalf of the customer (in such cases the customer isn’t aware of such transactions). There is a possibility of misinterpretation of information and possibility of identity theft
Use of Blockchain
Case 1: Policy upgrade and avoid customer embezzlement
During registration, the customer can enter his/ her details once the details are entered it can be digitally signed. Once the details are entered it can be encrypted and parked for review, once the successful review it and approve the transaction the amount can be directly debited from the customer’s account which was mentioned during the registration. Once the transaction is successful the transaction is approved and moved to the block which is contains digital signature (hash cryptography) of the customer and the miner who has mined it. Thus making it a legitimate transaction and avoiding any fraudulent activity and data leakage, as any modification in the document from the one which was agreed by the customer would mean change in the hash sign.
While registering the any hereditary health issues, this will be helpful from the insurance company as few of the health issues kick in after a certain age, the customer can be insured on that particular diseases depending on the customer’s approval.
There can also be an option of a wearable device, wherein the insurance company can track the health of the customer and provide an additional insurance service like a top up to his/ her existing service. For example, a customer, say was 25 years of age, when he registered for the policy. Once he crosses 45, few diseases related to heart or eyes may arise. The insurance company may choose to take a proactive measures to insure Bob on these diseases. The company can send a message to Bob, and once he approves the policy and digitally signs it, a new policy can be updated and put in a block with a reference to its earlier transaction. Alternatively, if Bob has an increase or decrease in his blood pressure (tracked by a wearable device), then the average he can be intimated about this and can be requested to top up his premium.
Case 2: Loyalty bonus
The insurance company based on the customers good track record, can issue bonuses or any loyalty programs to the customer. For example, a customer, Alice has a good track record with the insurance company. She makes payments on a regular basis with no defaults. She also has a family health plan with the same company. The insurance company can decide to give 25% off on her next payment.
Blockchain use: This can be achieved on this technology as the payments made by Alice would contain her unique key and by the use of smart contract, the system can identify this and also link to any parallel policies taken by her or referred by her (her reference would also contain her unique identifier)
Process flow policy claim today
When the customer initiates the claim process, there are two parts to it:
Part 1: If the hospital has a tie up with the insurance company
In this case, the majority of the work lies with the hospital as it submits the bills on the customer behalf to the insurer. Here the customer isn’t aware what are parts which are covered by the insurer and which aren’t. The customer is only notified at the end of term or once the cover funding runs out.
Part 2: If the hospital doesn’t have a tie up with the insurance company
In this scenario, the customer has to pay first and claim later. This process is longer as compared to the 1st process where the hospitals are tied up with the insurer. Once the claim is submitted, it is passed through multiple hands and approvals which ends up delaying the actual claim process. Also, to add to the delay, there may be back and forth due to incomplete or missing documents. In the end, the amount is drastically reduced from the amount spent. This is conveyed to the customer only at the full and final settlement receipt. In such a scenario, the customer can also try to duplicate the claim.
Use of Block chain
Case 3: Proxy claim
Blockchain can be used as a platform where multiple insurers collaborate. The advantage here is that it can avoid the case where the insurer doesn’t have a tie up with the hospital. For example, Bob is undergoing a treatment in hospital Eros and is covered with insurer Platinum . But the hospital doesn’t have a tie up with Platinum but with another insurer Gold. In the above example let’s assume that insurer Platinum and Gold collaborate using a Blockchain platform. Bob could advice the hospital to carry out the claim from Gold instead of Platinum.
The process would be as follows:
- Platinum and Gold will get into an agreement that their customers can carry out such proxy claims
- Gold becomes the proxy insurer for Bob
- Platinum and Gold exchange the customer details
- Bob is explained about the terms and conditions (and charges if any)
- Bob is also notified about the claims as and when it happens.
- All nodes with insurer Gold are updated
- A smart contract can kick in if the funds are about to dry out
- It can notify Bob whether or not he wants carry out the payment now or opt for an overdraft option.
- In the end once the treatment is completed, the two insurers can reconcile between them and nodes of insurers Gold and Platinum are updated.
The advantage of carrying this out on Blockchain is that the customer (Bob) would have transparency about his claim procedure and spending, and involvement of a third party would be avoided.
Case 4: Claim Process (updated)
This can be used for processing the claim from the insurer. The customer files for a claim, instead of a manual process of clarifying the bill amount spent against each procedure. The hospital and insurer can work out a common global code which can be used by smart contract and it will verify what’s covered as part of the agreed policy and the claim can be processed in a shorter duration. Instead of using multiple documents for claim filing, the insurer can get the necessary (updated) customer details from the block and verify them against the claim.
In conclusion, Blockchain can help in securing the insurance industry and bring about a common platform (which’s been missing) to help the insurance companies to communicate and transact with each other.