The use of blockchain is a relatively new concept in the insurance industry that could speed up applications and claims processes
When you think of blockchain, there’s a good chance that Bitcoin and other cryptocurrencies are the first things that come to mind. But while these commodities operate using blockchain, the technology isn’t limited to decentralized currencies.
The most basic blockchain definition is that it’s an open ledger where two parties can efficiently record transactions in a permanent and verifiable manner. It’s also possible to program the ledger to automatically trigger transactions, a feature that is particularly important when applying the technology to the insurance industry.
All of the data blockchain stores use digital code with protections from revisions, tampering, and deletion. The technology permanently etches every single agreement, transaction, and payment into the chain, and all this information is validated and shared between the right parties.
From an insurance perspective, blockchain creates an immutable place to store data, creating a transparent yet secure system for clients.
Here’s what you should about the potential for blockchain in the insurance industry:
How blockchain could work for insurance companies
In basic terms, blockchain will provide data, payment, and contract services for insurance companies.
Blockchain can store and exchange significant amounts of information without keeping it in a central location. As a result, everything is secure and traceable, helping to limit fraud.
It’s also possible to use blockchain for peer-to-peer electronic payments. Once again, this payment method is traceable and transparent, allowing insurance companies, policyholders, and beneficiaries to send and receive money securely.
Finally, blockchain could allow insurance agencies and policyholders to submit contract information virtually and often without human intervention. The result is a faster process, perfect for time-sensitive situations such as the need for travel insurance or renewing auto insurance at the last minute.
Using blockchain in this way, insurance companies have the potential to provide clients with instant access to everything they require to send and receive information and payments while keeping every aspect of the transaction secure.
The practical benefits of blockchain
The benefits of using blockchain in the insurance industry are numerous, although the secure transfer of information is paramount.
When dealing with contracts, this technology can automatically piece information together to create an agreement that includes the correct details.
For example, if you’re buying car insurance, your past claims history will affect your fees. When a blockchain network stores your information and includes an automatic transaction ledger, you can quickly apply for and receive a policy online. The system will pull all of your records before automatically creating a contract using pre-defined parameters. No human interaction is necessary because blockchain links all your data.
The technology may also create a more dynamic relationship for clients and insurance companies because all of this information is accessible at all times. When something changes that could provide you with lower rates, it’s automatically applied to your next insurance contract without a human having to catch the change. This switch is good news if you’re due for a discount but aren’t aware of it.
From the insurance carrier’s point of view, blockchain can reduce administrative costs and improve efficiency because of automation. The faster an agency can provide users with insurance, the better it is for all parties. It also allows insurance agencies to provide the most up-to-date prices and coverage based on the user’s current situation.
A reduction in fraud is also sure to follow because of how blockchain works. The gist is that although everything along the blockchain network is anonymous on the surface, investigators can track down those who file fraudulent claims. And since the technology stores every last piece of information and it’s unerasable, these investigators won’t have to go through paper records to identify potential insurance fraud.
Of course, all of this comes with the added security of a decentralized network that is virtually impossible to hack.
The argument against blockchain
Although blockchain is very secure, some are against the insurance industry adopting this technology globally. One such reason is potential fraud because blockchain has limits based on the quality of information it receives. If an individual puts inaccurate information into the system, the chain can’t automatically change it.
For example, if Individual A causes a car accident but claims that Individual B is at fault when filing a claim, there is the potential for fraud. However, insurance agencies will still use investigators to identify the at-fault party, much like they do with a traditional insurance claim. Blockchain won’t create a free-for-all where anyone can file a fraudulent claim and receive a payout because there are tracing methods available.
This scenario doesn’t necessarily indicate blockchain’s particular effectiveness since fraud already occurs within the current system.
Identifying your insurance needs
While blockchain isn’t yet widespread in the insurance industry, experts are evaluating its potential and selectively using it. And this transaction method could create a more transparent experience between insurance agencies and their clients.
NICRIS also provides a collaborative experience through our free, custom insurance review. Or get in touch with our team of insurance experts directly to get started.