By Jaqueline Van Eeden, Insurance Head, and Anuj Ahuja, Finance Solutions, Wipro Limited
One of the biggest technology buzzwords of the moment is the blockchain. It’s being touted as the ‘next Internet’ in terms of the predicted impact it is set to have on the world, across all industries. "While the first generation brought us the 'Internet of Information', the second generation, powered by Blockchain, is bringing us the 'Internet of Value'" said Don Tapscott and Alex Tapscott , Co-authors of Blockchain Revolution and founders of the Blockchain Research Institute in conversation with Naveen Rajdev, CMO of Wipro Ltd.
At present, due in part to its association with Bitcoin, the blockchain seems to be more predominant in the financial industry than anywhere else. However, due to its intrinsic nature, the 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.
22% of insurance, asset and wealth management business is at risk to disruption from FinTechs according to our Global FinTech survey. The insurance industry is one 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 in order to get change implemented. Insurers who wish to remain current or start innovating to stay ahead should be experimenting with the many ways in which the blockchain can simplify and streamline the way they do business.
Blockchain can solve a number 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.
Using the blockchain resolves many of the challenges which arise around insurance policies, such as obtaining client consent, or approval, and co-operation to collectively invest funds in shared resources and infrastructures, thanks to the transparent nature of the blockchain. All information pertaining to a policy is recorded accurately and in real time, including dates, times, participants, locations and values of every single transaction. Because the 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 challenges many of the Insurance companies to move towards investigating the 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:
Blockchain for Claims Processing
Blockchain in claims processing can help establishing an efficient, transparent and customer focused model high on trust. Typically claims process involves customer making a claim request by call to a call centre or through an intimation being made through mobile app. The information is then passed to the insured, instead there can be a direct link created between claimant, insurer and third parties where all data is being directly uploaded and making an audit trail being available. The claims process majority being an Insurance -company centric process doesn’t 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, for the period required, ie Travel Insurance for the length of a Holiday, or Insurance for the duration of your Uber ride. Why can claims in Insurance not be processed with the same speed? When there is a need to claim, the consumer would expect the Funds to be available immediately.
Imagine if there was a way in which these claims could be paid out faster / instantly / proactively? “Through automated underwriting and claims handling”
Blockchains with smart contracts could be applied to offer consumers claim submissions at a low handling costs, if underwriting and claims handling can be automated based on defined rules and the availability of reliable data sources. Pay-outs to these insured consumers can be triggered when the claim is submitted and can then be paid fast by accessing verified databases, through Intelligent rules taking the users Social media profile into account, and also market changes which can assist with any possible fraud predictions.
Blockchain for customer retention
One of the key trends of any insurer is to increase customer retention. Insurers are constantly looking for new ways to improve customer satisfaction and increase their customer centricity. Many insurers are investing in loyalty programs for their customers which offer points based benefit. The blockchain is able to facilitate this and take it up a notch, enabling a platform which allows for the 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 the 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 possibility for customer satisfaction and rewards.
The aim 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’, and this can mean high levels of issuance and redemption, and greater value for end customers.
The blockchain can 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, increasing their freedom of choice, and providing 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 or even, in some instances, as a method for insurers to pay out claims.
Blockchain for insurance
Insurance companies can start by exploring the blockchain within their own organisations. Insurers can begin independently, running hackathons and building up a developer community in order to receive exposure to new technologies such as the 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 the 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 may well 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 digitization technology that could be of strategic interest for 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 at-scale blockchain use
\cases and profit from the technology’s benefits in about five years from now.
Blockchain may reduce administrative/operations cost through automated verification of policyholder identity and contract validity, auditable registration of claims and data from third parties (e.g., encrypted transaction of patient data between doctor and injured party accessible by insurer to verify payment), and pay-outs for claims via a blockchain-based payments infrastructure or smart contracts.
Giving reinsurers, for example, controlled access to claims and claims histories registered on the blockchain improves transparency for the reinsurer in an automated and, at the same time, auditable way.