The insurance industry is very complex, with a lot of different parties involved and a lot of data to manage. The insurance sector is appealing for blockchain-based optimization because of its two aspects. Distributed ledger technology is a prominent feature of a rising tide of technological innovations, known as insuretech, which seek to bring new efficiencies into the insurance industry.

The value of blockchain technology in the insurance market is projected to grow at a compound annual rate of 84.9% over the next five years, reaching $1.4 billion by 2023. In a 2019 report, KPMG stated that blockchain is not just a “buzzword” or “future innovation” for the insurance industry, but is already being used in flight delay and lost baggage claims systems. It is expected to improve other risk domains such as shipping and, to a lesser extent, health care.

One of the technologies that is set to disrupt the insurance business, according to a 2018 World Insuretech Report put together by a consulting firm Capgemini and fintech industry association Efma, is blockchain. Other technologies that are set to disrupt the insurance business, according to the 2018 World Insuretech Report, include artificial intelligence (AI), drones, wearables and robotic process automation. The document cited benefits such as enhanced information exchange, increased trust, and improved efficiency of smart contracts.

Hartford’s Insuretech Trends report found that insurance companies are using blockchain technology to improve processes, provide transparency, and enhance security. Blockchain can also be used for data management and protection, which can reduce administrative costs and improve consumer trust and loyalty. Overall, there are many advantages that come with implementing blockchain technology in the insurance industry. This is a more detailed look at some of the areas that can be optimized.

This is the right time to join the trend of digitalized communication, clarity, and transparency that customers prefer. 30-page application forms are a thing of the past, and clients are no longer left in the dark trying to make sense of them. Before, customers would only get one yearly update from their insurance company about their policy renewal, and they often didn’t even understand the coverage they had. They remain aware of changes happening in the business world around them.

Of course, no transformation is easy.

Insurance leaders are finding it difficult to respond to these new requirements. Around 40% of people feel uncomfortable and very worried about how quickly things are changing to the new system. Additionally, newer technologies such as AI, ML, IoT, Blockchain, etc. are allowing InsurTech startups to come into the market. While insurers still have an advantage when it comes to knowledge and expertise, they can’t afford to just sit back and watch as their bread-and-butter businesses disappear.

Insurance challenges 2020

People want insurance in order to protect themselves and their belongings from potential harm. The insurance industry is constantly changing due to regulatory changes, economic uncertainties, new innovations, and decreasing customer loyalty. Many insurance products are becoming commoditized, which makes it difficult for companies to differentiate themselves.

This means that businesses will have to rely more on digital methods instead of traditional methods. This leads to the following challenges:

Grow business via customer experience.

Many insurance carriers fail to meet policyholders’ expectations. Most customers want accuracy and responsiveness from businesses, similar to what they experience in other markets. Forty percent of respondents said they would continue to have a relationship with their insurer based on the quality of their experience. It is crucial to attract new customers and keep existing ones, so easy-to-use friendly solutions should be a priority.

Maintain legacy systems.

Most companies, especially older ones, rely on old, disconnected systems that are expensive and require a lot of manpower. Many insurance organizations find it difficult to find the right talent, with 65% finding the process long and expensive.

Information and workflow management.

There is a struggle for insurance carriers to deal with manual process steps that include tasks that are repetitive, creating reports, managing claims, and requests. As data requirements increase, it becomes more difficult to find and process the necessary information. This process is also longer and less efficient.

Staff lack.

In the United States, only two percent of university alumni plan to work in insurance. and/or that many insurance companies are afraid of investing time and resources on something that is not guaranteed to succeed This implies that either many insurance companies lack the personnel needed to implement and develop new insurance concepts, or that they are unwilling to invest the time and resources required for something that may not prove to be successful.

Fraudulent claims cost.

Fraudulent activity costs the insurance industry approximately $30 billion every year. This significant financial loss has led insurers to seek out more intelligent, effective, and secure solutions. Fraud analysis today mostly consists of looking at what has already happened and using conventional management approaches. This means that there is no one working to prevent fraud.

Cyber risks management.

As technology advances, it is becoming increasingly important for companies to understand cyber threats and how to protect their customers from them. This includes things such as the value of losses from data breaches, the loss of reputation, settlement costs, and cyber extortion.

Rise of digitalization.

As tech giants are already entering the market, insurers need to make sure their web and mobile platforms and brands are up to par. As most consumers buy auto insurance online, it is important to have an online presence in this market. It means being able to provide solutions through the web/mobile, call centers, and chatbots no matter where or when. In line with the global regulations, of course.

In 2020 the power is shifting from product to consumer.

A shift in social trends is going to cause traditional business strategies in the insurance industry to become obsolete due to advancements in technology. It is important for insurance companies to stay up to date with technology advancements in order to grow and satisfy their customers.

Not every technology needs to be used, but being knowledgeable of the trends will help you stay up-to-date with your customers. When you share the same concerns as your customers, you can offer them solutions that are relevant to their situation.

Automating processes

Part of an insurance company’s job is to check if claims are real. outdated systems that use only one database and physical records are very slow and expensive: it can take days or even weeks for someone to approve a request, and there is still potential for mistakes or misuse. We could lower insurance premiums for customers by automating processes with a tamper-proof ledger and self-executing smart contracts.

State Farm and the United Services Automobile Association (USAA) are piloting a blockchain-based platform that could potentiallyoptimize various insurance processes. This was reported by Cointelegraph in late May 2019. This solution is designed to speed up the process of auto claims subrogation. Subrogation is the last stage of a claim’s processing, when an insurer retrieves the costs it had paid to its wronged customer from the at-fault party’s insurer.

The American Association of Insurance Services (AAIS) has a blockchain-based network called openIDL which has been successful. Although insurance companies are heavily regulated, a large amount of their resources are dedicated to complying with these regulations. OpenIDL can help automate regulatory reporting, making it easier for both insurers and authorities.

Fraud prevention

Insurance fraud, which is made easier by the lack of ability of different parts of the insurance industry to share information and the complex paperwork that comes with settling claims, is very common in developed countries. This type of offence results in estimated aggregate losses of $40-$80 billion annually in the US alone. Although it is insurance companies that have the initial financial loss, everyone who uses their services ends up sharing the burden through increased premiums.

CB Insights analysts say that blockchain technology could help reduce fraud by consolidating insurers’ databases. If all claims are recorded on a decentralized ledger, it will be very difficult for fraudsters to, for example, submit multiple claims for the same insured event to different companies. If there was a transparent database of all claims, it would be easier to identify cases of suspicious behaviour or abuse.

Although the idea of a single blockchain database that can be accessed by anyone in the industry seems like it is far from happening, individual blockchain verification systems are already being put into action. Marsh is an insurance broker that is reportedly going to unveil a Hyperledger-based proof of insurance platform. Recently, fintech startup BlockClaim has procured 500,000 British pounds ($627,000) of venture capital. Their blockchain/AI solution is designed to automate the processing of insurance claims. The firm reports that settlements occur more quickly, claim costs are reduced, and AI-based features for fraud detection have been successfully implemented.

Health care

The arrival of operational blockchain solutions will change the game entirely in the health care insurance domain. Efficiently managing and coordinating patient data between doctors and medical institutions while preserving patients’ confidentiality is a major challenge for the healthcare sector. The CB Insights report states that there is often not enough data to go off of which leads to claim denials costing medical care providers $262 billion annually.

Related: How Blockchain Improves Daily Health Care Routine, Explained

One of blockchain’s key advantages is its ability to allow various users to share data securely while also precise control over who is allowed access to what information. If there was a comprehensive distributed medical database, patients would be able to choose which parts of their medical history to share with a certain doctor or clinic. This will help medical professionals and administrators have instant access to their customers’ health records that are verified through blockchain technology.

Building a complete record of everyone’s medical history is a huge project that will take the effort of the entire industry to make happen, but there are some smaller steps that can be taken in the meantime to improve things. one of them is medrec. an mit media lab project. This Ethereum-based system is designed to store smart contract-enabled permissions that allow access to the database by nodes on the network. Patients or medical institutions can configure these permissions to allow access by other participants.

Life insurance

The premiums for life insurance policies are also determined by the health records of the policy holders. If all patients have their medical histories moved to a secure medical database that uses blockchain, life insurers will be able to calculate premiums and issue policies automatically.

According to Ignite Outsourcing, finding a beneficiary after the insured’s death can be difficult due to family dynamics and flaws in record-keeping. Currently, there is about 7.4 billion dollars of unclaimed life insurance money sitting in carriers’ bank accounts. The event of a policyholder’s death would trigger a smart contract automatically, which would spell out the order of potential beneficiaries clearly.

The authors of the report also mention that the owners of life insurance policies are able to sell them to third parties. Such deals are not common now, but they could become more convenient when policies run on a blockchain. A startup called fidentiaX is looking to expand its market share by offering a platform that allows users to buy and sell tokenized insurance contracts. The company brands itself as a marketplace for tradable insurance policies.

Property titles

Title insurance is a $15 billion industry that is expected to grow steadily in the coming years. A contract like this is not like other insurance contracts where it protects you from future losses. This type of contract protects you from something that happened in the past, like a tax lien from a previous owner. If someone challenges the new owner or lender’s right to the property, the title policy will be used to help settle the dispute.

In order to insure title rights, it is necessary to be able to verify that these rights are supported by the relevant records. In other words, blockchain technology will not only disrupt the title insurance business, but also the entire process of title record-keeping. Storing titles on a ledger that cannot be changed will minimize the risks associated with records being lost or forged, and will make it easy for legitimate property owners to prove that their claims are valid.

First American Financial and Old Republic Title Insurance recently joined forces to create a blockchain-based network of title insurance underwriters. This will enable industry participants to exchange previous insurance records.

Reinsurance

Insurers also need their risks hedged. A company’s solvency may be threatened if it gets flooded with claims from a major disaster that drains its reserves quickly. In order to protect themselves from possible future events similar to the one mentioned, insurance companies will buy coverage from reinsurers or take part in agreements with other companies within the same industry.

This process is currently inefficient and lengthy, involving underwriting reinsurance and negotiating policy conditions. Insurance companies usually have more than one reinsurer, which requires a lot of data exchange. This is a good opportunity for blockchain to be used to simplify the complex process.

In October 2016, five European insurers teamed up to form B3i, an initiative to explore how blockchain technology could be used to benefit the insurance industry. More than a dozen more big businesses from Europe, Asia, and North America have joined them. A global consortium is developing and testing a smart contract system that provides reinsurance for natural disaster insurance. The system, which had a working prototype in 2017, can automatically process data from people affected and determine how much they should get paid. The system should be fully operational by 2019.

Peer-to-Peer Insurance

P2P insurance is a model that allows people to insure each other without going through a third party, which is remarkably similar to the ideology of decentralization that is inherent in the cryptocurrency world. The proposed idea is for a group of individuals to pool their resources together to create a safety net for whoever from their ranks incurs a loss as a result of an unforeseen event, instead of relying on a central insurer and an underwriter. An arrangement like this, which is usually made up of people you know, is usually cheaper than buying a policy from a corporation. And it may be a more pleasant experience.

Although friend pools allow for transparency and convenience, at a certain point they will require professional, centralized management. Here enters blockchain to save the day. The P2P transactional structure of these “horizontal” risk pools is very similar to a decentralized autonomous organization (DAO). PwC analysts say that DAOs are good at managing complex rules between a lot of different stakeholders, which makes them perfect for making peer-to-peer insurance more efficient and scalable.

Going forward

Insurers are looking to blockchain to help them streamline processes and cut costs, but many of the most impressive use cases are still in the early stages. The main perk of this technology is that it makes coordinating between people easier. If the industry wants to make the most of this opportunity, it will need to agree on standards for exchanging information, create shared data pools, and work together. B3i will have to include most industry stakeholders, which is a very difficult task, given the sector’s size and lack of progress.

Another potential problem for blockchain’s rapid growth is regulation. Insurance companies are under increased regulatory scrutiny, as is distributed ledger technology. Combining the two will require a lot of work to overcome obstacles, as well as creating new guidelines to direct the cooperation.