Part of our Banking, Financial Services, and Insurance Series
One of the biggest technology buzzwords of recent years is the blockchain. Touted as the ‘next Internet’ for the predicted impact it is set to have on the world, across all industries.
At present, due in part to its connection with cryptocurrency, blockchain seems to be associated more predominantly with the financial industry. However, due to its intrinsic nature, blockchain could be the perfect solution to a host of challenges faced by the insurance industry. And it more than deserves to be given proper evaluation as a potential replacement for the current central database model employed by most insurers.
According to PWC, almost 90% of financial services firms globally, especially the more traditional ones, fear FinTech challengers will chip away at their revenues . Even today, the insurance industry is dominated by traditionalism and entrenched in bureaucracy. Many insurers remain oblivious to the opportunities that technologies such as the blockchain can open up for them, and those that are aware often have to cut through a lot of red tape for change to be implemented. Insurers who wish to remain current or start innovating to stay ahead should experiment with the many ways blockchain can simplify and streamline the way they do business.
Blockchain can solve a myriad of insurance challenges
There are several ways that the blockchain can add value to insurance, allowing for the following services to become available, or more efficient:
- Smart contracts for insurance policies and faster claim processing;
- Payment verification—which will enable financial transactions such as claims collections or pay-outs to be faster, more accurate and auditable;
- Compliance—enabling insurers to reduce regulatory oversights and the associated costs.
Due to the transparent nature of blockchain, its application resolves many of the challenges arising from insurance policies; such as obtaining client consent or approval, and cooperation to collectively invest funds in shared resources and infrastructures. All information about a policy is recorded accurately and in real-time. This includes dates, times, participants, locations, and values of every single transaction. Because blockchain distributes consent, this information is protected from any unwanted or illegal adjustment and tampering, making it safer than any preceding technology to date.
Looking at the market trends, the main challenge many insurance companies exploring blockchain technologies is the complexities required to make such a change.
Let’s take a look at two of the many instances where blockchain can be used:
1. Blockchain for Claims Processing
Blockchain in claims processing can help establish an efficient, transparent, and customer-focused model built on trust. Typically, the claims process involves a customer making a claim request via a call to a customer support centre or through an intimation made through a mobile app. Instead of this tedious process, a direct link can be created between the claimant, insurer, and third parties where all data is being directly uploaded and making an audit trail available. Making the claims process an insurance company-centric process would not require much buy-in from external stakeholders.
All over the world, insurance is changing and moving closer towards ”Insurance on the Go”. Consumers want the flexibility to take out insurance for their special requirements, only for the period required; such as travel insurance for the length of a holiday or vacation, or even just for an Uber ride. How is it that insurance claims can not be processed at the same pace? When there is a need to claim, the consumer would expect the funds to be immediately available.
2. Blockchain for customer retention
Blockchains with smart contracts could be applied to offer consumers claim submissions at a low handling cost if underwriting and claims handling can be automated based on defined rules and the availability of reliable data sources. Payouts to these insured consumers can be triggered when the claim is submitted. And it can then be paid conveniently by accessing verified databases, through intelligent rules taking the user’s social media profile into account, as well as market changes that can assist with any possible fraud predictions.
One of the key business objectives of any insurer is customer retention. Insurers are constantly looking for new ways to improve customer satisfaction and increase their customer-centricity. For example, many insurers are investing in loyalty programs for their customers which offer points-based benefits. The blockchain can facilitate this and even take it up a notch, enabling a platform that enables easy exchange of points between different loyalty programs – a virtual loyalty trading platform.
While loyalty programs are already in existence, it is the concept and execution of interoperability enabled by blockchain that can help usher in a truly effective loyalty and rewards program. Blockchain technology, through smart contracting and unique customisation abilities, enables loyalty program providers to partner with other loyalty program providers that make sense for their customers, opening up a whole new world of possibilities for customer satisfaction and rewards.
The goal will be to reduce and almost eliminate the silo effect that dominates the current loyalty operation. A blockchain-supported loyalty platform can keep all of those programs under one ‘umbrella’—possibly translating to high levels of issuance and redemption, and greater value for end customers.
Blockchain can also help leverage knowledge of customer preferences in real-time, enabling the end-user to ‘become the operator’ of the platform. This gives the customer the ability to exchange, for example, airline points for restaurant points, implying that the customer can choose the reward that works best for them. This effectively increases their freedom of choice and provides a better consent platform for the insurer.
If we refer back to the Bitcoin connection, innovative insurers could potentially disrupt membership and loyalty programs by providing an easy way for customers to receive cash rewards and possibly an efficient method for insurers to pay out claims.
Getting into Blockchain
Insurance companies can start by exploring blockchain within their organisations. Insurers can begin independently. For example, by running hackathons and building up a developer community to receive exposure to new technologies such as blockchain.
The first step for insurance companies with blockchain technology will likely be to look at smart contracts followed by exploring identity validation. Currently, the industry is highly centralised and the introduction of new blockchain fuelled structures, such as mutual insurance and peer-to-peer models based on the blockchain, could fundamentally affect the status quo – what is stamped into a blockchain cannot be reversed or altered.
Research suggests that the insurance industry is currently falling behind in terms of understanding the nature of blockchain and subsequently maximising the opportunities it presents. Every insurance company’s core computer system is a centralised transaction ledger, and if the insurance industry does not begin to learn about, evaluate, build with and eventually embrace blockchain technology, they leave themselves vulnerable to displacement by the insurers who are using blockchain to disrupt the industry.
Outlook on next steps for the insurance industry
Blockchain is a digitisation technology that should be of strategic interest to insurers. The biggest challenges to its industry-wide implementation are facilitating collaboration between market participants and technology leaders, succeeding in the operational transformation, and shaping a stimulating regulatory environment. Laying the foundation to address these challenges today will put insurance companies in a position to have scalable blockchain use cases and profit from the technology’s benefits.
Blockchain may reduce administrative and operations cost through automated verification of policyholder identity and contract validity, auditable registration of claims and data from third parties (e.g., the encrypted transaction of patient data between doctor and injured party accessible by the insurer to verify payment), and payouts for claims via a blockchain-based payments infrastructure or smart contracts.
Giving reinsurers, for example, controlled access to claims and claims histories registered on blockchain improves transparency for the reinsurer in an automated and, at the same time, auditable manner.
What you can do next.
Monstarlab’s global pool of technology experts can help you find your way into new technologies and uncover executions that would make the most business sense and value. Working closely with you to understand your goals and align the most relevant technologies.
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Jackie Du Plooy Connect on LinkedIn | email@example.com
Jackie has over 20 years of experience in digital transformation, strategy & innovation, and commercial management across industries including BFSI in several countries as a Client Partner. Her focus has been on building high performing teams and sound strategic partnerships by bringing together delivery and commercial professionals to drive the customer strategy and journeys of digital transformation.
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Endnotes: PwC, Redrawing the lines: FinTech’s growing influence on Financial Services, 2021  Woolmagazine.com, Blockchain Holy Grail of Truth and Trust