Improving Insurance with Blockchain Technology
Insurance protects property, assets, health, and professional services by providing “safeguards” against liabilities and increasing social inflation. Although the insurance industry has evolved to accommodate more extensive coverage, back-office operations have failed to keep pace, with slow claims processing and siloed departments hindering efficiency. Blockchain technology’s automated, decentralized, and auditable capabilities have the potential to optimize the insurance industry by improving accuracy, interoperability, and recordkeeping.
Automation → Improves Accuracy
According to TigerConnect, 90% of health insurance companies still use fax machines—one of several unproductive processes that increase the likelihood of human error, leading to the potential for significant financial loss. For example, in 2016, United States businesses lost approximately $1.8 billion due to outdated technology and inefficient operational functions. Smart contracts, computer programs stored on a blockchain that run when pre-conditions are met, enable businesses to automate agreements and workflows.
Benefits of Automation in Insurance:
● Provide immediate service and payment for policyholders who meet requirements
● Automate claims handling, accounting, and adjusting
● Detect fraud or potential risks to mitigate financial losses
Decentralization → Improves Interoperability
Insurance companies are robust enterprises with multiple departments, often leading to transparency issues regarding customer interaction, pricing, policy changes, and company processes. Decentralized features of private blockchain networks ensure that all information is accessible to approved internal stakeholders. Companies such as J. P. Morgan and MetLife have already implemented private blockchain networks to help verify transactions and send internal documents. Additionally, decentralization promotes trust and open data sharing for better company culture, collaboration, and interdepartmental communication.
Benefits of Decentralization in Insurance:
● Answer company, client, and policy questions efficiently
● Obtain visibility into transactional history
● Pinpoint claim or document bottlenecks
● Immediately update stakeholders with new or amended information
Auditability → Improves Record-Keeping
Between 2015 and 2020, car insurers such as Farmers Insurance, The Hartford, and Liberty Mutual Insurance reported 27% decreases in their customer bases due to discontent with services. Because outdated insurance filing systems present documentation challenges and often lead to lost paperwork and increased resolution times, policyholders become disillusioned. An internal, auditable ledger would provide an innovative means of securely documenting data, thus helping to improve customer service.
Benefits of Auditability in Insurance:
● Traceable transmission of electronic records
● Recording and accessing information for underwriting
● Preparing for compliance and audit mandates
Insurance is an industry primed for technological integration. Following decades of stagnant operating procedures, blockchain can improve how insurers maintain and transfer records, manage risk, execute transactions, and interact with key stakeholders. As a result, organizations that adopt blockchain technology will be better equipped to improve operational efficiency, support clients and claims, reduce costs, and increase profits. Moreover, as insurers experiment with the ways blockchain can optimize current business models, we believe they will ultimately evolve to create entirely new types of policies, innovative processes, and streamlined services with blockchain technology at their core.