Insurtech, short for insurance technology, is a term used for technology designed to improve the operations of the insurance industry as a whole. Insurance companies incorporate technologies like big data, artificial intelligence, and smartphone apps to transform their business. Increasingly, it’s also been looking at one of the most promising inventions of our times — the blockchain. Especially for me as part of the Bamboo team — working on the convergence of healthcare, blockchain and insurance.
To the uninitiated — a blockchain is a shared, immutable ledger that simplifies the process of recording transactions and tracking assets in a business network. The assets are distributed instead of copied or transferred, creating a secure and unaltered transaction. A transparent ledger of changes protects the integrity of the document, which creates trust in the asset.
Blockchain technology in Insurtech
The primary advantage of blockchain is that it builds trust between parties sharing information. A blockchain network can track orders, payments, accounts, and much more. Since members share a single view of the tangibility, you can see all details of a transaction end to end, ensuring security.
This may not sound exciting at first glance. But take a look at how our world will change:
Fraud detection & Risk prevention
By moving insurance claims onto an immutable ledger, blockchain technology can:
- Help detect identity fraud, or falsified injuries or damage reports,
- Be used to validate authenticity, ownership, and documents (e.g., medical reports).
Based on an insurance policy owner’s records, Blockchain smart contracts will forever change how we interact with insurance companies. Immutable data can immediately be verified, and the premium payments cleared to individuals (or retained) depending on the true state of a case.
According to CBinsights, the total cost of insurance fraud (excluding health insurance) in the US is estimated to be more than $40B a year — insurance fraud costs the average US family anywhere between $400 and $700 in the form of increased premiums. Insurtech using blockchain would give insurers three key benefits:
- Eliminating double-booking or processing of multiple claims from the same incident.
- Establishing rights through digital certificates and reducing counterfeit.
- Lessening premium diversion, for example, in the case of unlicensed brokers selling insurance and pocketing premiums.
Reinsurance
By securing reinsurance through smart contracts, blockchain technology can facilitate information and payments between insurers and reinsurers. The system lets all involved parties (primary insurers, reinsurers, regulators, brokers) see all relevant data for themselves and automates a large part of the process.
Blockchain technology creates huge potential for enabling digital contracts and transactions among multiple parties to be achieved in a secure, transparent, and auditable way. It will also reduce costs and improve efficiency in the way the industry works with its customers. PwC estimates that the blockchain can provide reinsurance industry-wide savings up to $10B by increasing operational efficiencies.
Reduce administrative costs
Blockchain helps reduce operations costs through automated verification of policyholder identity and contract validity, auditable registration of claims and data from third parties, and payouts for claims via a blockchain-based payments infrastructure or smart contracts. Offering reinsurers controlled access to claims and claims histories are reflected on the blockchain improving transparency.
To complete mandatory requirements such as KYC (know your customer), insurance providers must collect, validate and verify key documents to prove elements such as name, address, birth, health and economic status. Time delays can be faced as various third parties, and internal departments must review the data to complete their due diligence processes. Then, companies spend vast resources fixing any errors that came up while records were being reconciled.
Here, a blockchain network is distributed, so the required documentation can be made available to whoever has access(permissioned). The records are secured with cryptography and linked together, which curbs them from being altered retroactively.
Claims processing
For a policyholder, making a claim can be a long and confusing process. It’s a process that can take quite a while, even if you are not pleased with the extra time needed to adhere to tighter regulations for avoiding fraudulent claims. With smart contracts, the claims process can be initiated automatically when the information of the loss of an insured is passed into a ledger-based database. Since data on a blockchain ledger is independently verifiable between disparate parties, this lifts pressure off the insured’s family to prove a loss through the paperwork.
For example, if a hospital enters input into a blockchain-based system that an insured had deceased, it could instantly send this information to the life insurer. The beneficiaries do not have to file a claim for the insurer to start processing.
Rather than compelling insurers and providers to compose patient data across separate databases, a blockchain system for medical records could compile a cryptographic signature for each record on a distributed ledger. This signature categorizes the content of each document cryptographically and timestamps it without actually storing any sensitive information on the blockchain.
Blockchain-based Insurance Startups
Etherisc is an open-source development platform that focuses on decentralized insurance applications. Etherisc creates decentralized, blockchain-centric applications for different sectors of the insurance industry. The company focuses on using ledger technology to cut down on inefficiencies, i.e., high processing fees and extensive claim-processing times.
Real-life use case: Etherisc has already developed six different decentralized insurance-related applications. One of them is a crop insurance app with which farmers identify their land and crops and any losses due to weather. Another app insures Etherisc members against potential crypto wallet hackings. Source
FidentiaX is the world’s first marketplace for tradeable insurance policies. With FidentiaX, users can buy, sell or store their insurance policies on the company’s blockchain. Using tokenization, the blockchain-powered marketplace recognizes existing policies and puts them into the encrypted database. In real-time, users can cash out on their policies, buy policies from others or find all their insurance data in one place.
Real-life use case: FideniaX recently created ISLEY, a blockchain-powered digital ledger for insurance policies. ISLEY gives customers a complete overview of their insurance policies, notifies them when their premiums are due, and displays an immutable record of your entire policy history. Source
The insurance industry is, in most markets, highly regulated to protect consumers from abuse and insurance firms from taking on too much risk and going bankrupt. Legal and regulatory frameworks for insurance need to evolve and furnish clear guidance for blockchain technology to gain more traction within the industry.
From an industry standpoint, insurance companies need to align around standards and processes related to blockchain technology. While blockchain technology can provide insurers with better tools for collaborating and sharing data, the insurers themselves must be receptive to work with each other.
