Blockchain insurance projects are now creating innovative ways to meld this new technology with the traditional insurance industry. Find out why and learn all about some of these cutting edge developments in insurance.
Cover image credit: http://www.creditdebitpro.com/
With every innovation comes an array of potential uses. Regardless of where it stands development-wise, it is a common reaction to begin listing its benefits for mankind. Will it push us into a new era of technology or is it something that helps a specific demographic? With all this optimism, we also face the real possibility of some – if not all – of its potential not living up to what we expect it to be. Maybe its development halts just when it’s excelling or it fails to perform the task we want it to accomplish.
With this in mind, it is important that we acknowledge a piece of technology that is right on track with its achievements. That innovation is ‘blockchain’, a public ledger that is intertwined with cryptocurrency. Its design, though intricate, is easy to comprehend when you apply the titular terms. In essence, it is a series of “blocks” (pieces of digital data) that go onto a “chain” (the public database). Whenever a block stores new data, it goes directly to the chain.
Right away, you can deduce what makes this technology so innovative. At its core, it is a helpful system that provides efficiency and transparency. Because of its effective and beneficial design, a wide variety of potential uses for it are coming to people’s minds. Financial institutions can use it, real estate can use it, healthcare can use it, the list goes on.
With its solid reputation and endless possibilities, it is not surprising when it inevitably lives up to its potential. In recent years, we are starting to see the emergence of blockchain use cases in banking and other similar industries. As a matter of fact, this progress shows that blockchain use in insurance is not only possible, but it’s happening.
The general appeal of the “chain” in financial security
Blockchain usage provides noteworthy advantages over other technologies. Probably the most notably are satisfactory data security and the formation of a clear-cut audit trail. Blockchain systems are immutable and they do not require any interference or governance of a central authority. In this sense, the application of a distributed ledger can result in brand new options for secure alliances between competitors. It effectively removes the otherwise customary need for trust between third-party organizations.
Insurance is one of the better examples of an industry where blockchain can potentially reconstruct its entire operation. Idealistic business leaders are in the process of devising new use cases for blockchain technology. Likewise, entrepreneurs are creating “insurtech” (insurance + technology) companies that are establishing new products. On top of that, they are focusing on brand new markets.
Despite the establishment of blockchain’s capabilities, insurers are still looking into blockchain’s potential applications within their diverse organizations. In addition, they are investigating the possibilities blockchain has for the industry as a whole. A good number of them are beginning to recognize blockchain’s significant potential to completely recreate the insurance value chain. Thus, it will generate an experience that is comparatively safer and more efficient, economical, and customer-friendly.
The technology holds potential in this particular field
Within any insurance firm, there exists a plentiful amount of use cases for blockchain technology. More often than not, the question comes from how it can help and which use cases offer better results in the long-run.
For some insurers, blockchain also provides a chance to confront any enduring assumptions, as well as reassess pre-existing insurance business models. A majority of blockchain activity is still in the ‘proof-of-concept’ (PoC) stage. However, we are already beginning to see some viable utilizations that the market is actively testing.
Some early adopters of blockchain technology are starting to explore use cases. These are leveraging on the underlying properties of blockchain in order to lower operational costs. To elaborate, these costs relate to transaction processing. From this, there is an improvement in data accuracy through a sizable increase in trust between participating parties. One specific area that is already garnering attention is the use of smart contracts. These automatically execute upon the achievement of a certain contractual principle.
For those who are unaware, smart contracts are self-executing contracts that have the agreement terms being directly in the lines of code. These terms are those that are between the buyer and the seller. Both the code and the agreements exist across a public, decentralized blockchain network. They allow for transactions and agreements to go through dissimilar, anonymous parties. This ingenious procedure does not require a central authority, a legal system, or any external enforcement. They effectively make transactions identifiable, transparent, and permanent.
Notable use cases for blockchain insurance
Let’s use a scenario from 2017 as an example. Insurance company, AXA, launched fizzy, which is a parametric insurance platform that is automatic and useful for flight delays. Fizzy documents information on the insurance of customers’ flight delays by using a smart contract. Moreover, it links up to global air traffic databases in order to monitor the status of flights.
Should a policyholder experience a two hour (or more) flight delay, the smart contract prompts the mechanism for payment upon flight confirmation receipt by the policyholder. From here, Fizzy will automatically pay the customer. This means that the customer does not have to fill out any claim forms nor do they have to speak to a service assistant. Additionally, AXA avoids having to spend time processing the claim via independent authentication of the claims data.
An additional use case that is acquiring considerable traction is the tracking of assets. For such insurers that provide for individuals of high net worth, blockchain gives secure and easy tracking of the proof of ownership. Moreover, it’s reliable for tracking the value of assets, like upscale art collections, jewellery, and even wine.
Combating against fraud
All over the globe, insurance companies tend to lose a lot of money annually. In fact, the rough estimate is up to $80 billion (in US dollars) per year. Probably one of the biggest challenges that these companies face when battling fraud is that adjusters rely heavily on physical processes to authenticate claim information. This includes item validation, ownership, history etc. which are all things that scammers can manipulate.
The unchangeable nature of blockchain transactions, alongside its exceptional provenance capability and the transparency of transaction records, introduces an opportunity. This is to construct an authoritative digital record of items in reality, as well as protocols and claims. These distinct digital records come in handy when authenticating and tracking valuable physical items all throughout their existence. At the same time, it makes it incredibly difficult for criminals to even attempt to defraud and swindle the system.
The road ahead
Blockchain has made great strides since its inception. Along with the attention it has managed to capture, it has also seen widespread consideration for its adoption. With that in mind, it is still in its early development stage. When you compare it to other similar innovations, it still has some ways to go before it is fully complete. Regardless, its growth is rapid and numerous platforms and individuals are showing interest in it.
Admittedly, it is too early to ponder the shifting of core business systems to this new technology. Due to the technology going through additional development, it’s difficult to think about accordingly. Still, it’s an appropriate enough time to carry out an analysis of blockchain’s overall impact. This includes a blockchain strategy construction and the administration of possible solutions via experimentation, as well as testing.
The incorporation of this technology into insurance companies further proves its great potential in the long-run. With a select few already implementing blockchain into their systems, it’s apparent that this innovation is right on the right track. Blockchain itself presents a new world of exciting and boundless possibilities that no one should ignore, lest they fall behind.