The main problem for insurers is the difficulty of controlling and metering the data necessary for a more objective study to help future decision making. Blockchain technology integration in the insurance sector gives a double advantages.
New research made at the request of the Long Finance fund by the Z/Yen company, with the support of PwC, shows that the insurance market is enthusiastic about the implementation of blockchain-based solutions. The data comes from interviews with broker dealers, insurers, reinsurers, regulators and professional companies from different countries that work in the global insurance market.
Blockchain would be the ideal technology to change the ways of working of the insurance industry, contributing to profit growth and sector development. At the same time, it will be able to decrease expenses and increase process effectiveness.
A typical case of fraud happens when drivers purposely cause a car accident or even pretend to be “victims”, and apply for insurance payouts.
In cases when claims are brought to several insurance companies, it is difficult to identify the fraud if the data is not distributed to all of them.
According to the Insurance Fraud Bureau (IFB) these “willful car accidents” cost about 400 million pounds a year.
How will a blockchain solve this problem?
It is possible to record all the insurance contracts and claims in a blockchain. Then all the participants can check them, which guarantees payment only for the real claims.
For example, a blockchain system can prevent claims for an accident because there is information in the network that the claim for this insurance case has already been settled.
Smart contracts could also fulfil the terms of the insurance. They would initiate payments automatically upon fulfilment of certain, verified conditions.
Currently if a client applies for various types of insurance at different times they have to complete the same data a number of times. There is no doubt this annoys clients. Moreover, they are worried about their personal data safety.
Blockchain can help insurers both by sparing clients the frustration of repeatedly having to provide data for verification purposes—a copy of a passport, for example—and by reducing privacy concerns.
Blockchain will solve these problems.
Blockchain can help with the know-your-customer (KYC) checks required by regulators to prevent money laundering—a process that is generally expensive and time-consuming for institutions and annoying for clients, especially if they have to offer up the same information about their identity and source of wealth to different institutions.
Once KYC data is verified, the customer can use a private key to grant companies in the network access to the encrypted data whenever it is needed.
Once the KYC check is done, the client will not have to fill in their personal data or answer other schedule items again. As soon as a client’s profile is added to a blockchain, they will be able to submit ID data to other companies to sign new contracts using the same tool. A high level of data safety is guaranteed by storing personal data in a blockchain.
Nowadays most of the insurance processes are done manually; they are prone to errors and they take a lot of time to carry out. Frequently the same data has different versions in numerous registering systems, which leads to extra costs and protracted disputes.
International insurance is very complicated, because of a labyrinth of international rules, additional documents and payment terms.
Blockchain will simplify this task.
As a rule, the principal insurance policy is issued in the country where the insurer’s headquarters is located. Additional difficulties and conditions arise in other countries. The real-time data-exchange system of a blockchain will allow the affiliates to receive new documents at the same time, see payment events of and make transactions immediately.
Most potential clients for insurance companies don’t apply for an insurance policy because of the difficulty in getting insurance payouts and expensive payments. By implementing new technologies such as big data and blockchain, the industry will be able to offer new insurance products.
The blockchain technology will help optimize the process of registration and acceleration of insurance portfolios. According to Gottlib, a portfolio created with a blockchain can automatically regulate insurance payouts in real time with increased anonymity and data safety levels.
An insurance company will be able to do the following using a blockchain:
Blockchain technology can simplify the procedure for placing and fulfilling insurance contracts, starting from the client’s application for the insurance policy and estimating insurance risks through to controlling amendments made and transactions performed during the life of contract.
PwC’s research showed that using blockchain technology for keeping and exchanging documents between broker dealers, insurers, indemnitees and reinsurers will reduce errors, data processing time and costs, and eliminate the need for repeated data entry and agreement. It will provide data consistency and immediate access to truthful information.
Blockchain technology will allow all involved parties immediate access to all the data created during the consideration and regulation of claims and to track all changes. Such an approach will significantly accelerate working with claims and will reduce the time for decision making for clients, broker dealers and insurers.
Among other advantages it is worth noting the reduction in delays and costs, plus the increase in legal certainty and client satisfaction, offered by moving towards blockchain technology.
Currently all broker dealers and insurers involved in the process of forming and fulfilling an insurance contract must verify data truthfulness independently, which leads to duplication, delays in contract placement and affects relations with clients.
Blockchain technology is able to hold clients’ documents which identify them as well as the results of their verification. Thanks to this, it is possible to create a unique access point for data verification and reduce the verification time. The risk of errors and reputation consequences will also reduce significantly.
Smart contracts automatically initiate insurance payouts in the event of flight delays or cancellations. Flight information is supplied by reliable sources and processed by a blockchain.
Payouts to the insured farmers can be initiated upon receipt of information on droughts from trusted weather or climate databases.
Use of a blockchain will allow individual insurance policies to be created, registered and managed with smart contracts for IoT objects (cars, electronic devices, and home electronics). This will automatically estimate damage and initiate repairs and insurance payouts.
Blockchain technology is an innovative solution for the logistics market. It offers full control and safe data storage because of its data distribution. This lets cargo shippers escape from mounds of paperwork. Insurance businesses can offer individual rates to every client, based on the history of cargo carried, reduced failure risk and costs for data processing.
Everledger insures purchasers of diamonds against fraud. The company digitizes stones and inputs information on more than 40 items for each of them, including purity, gem-cutting etc.- each stone is given a serial number.
«SBERBANK insurance» has been working for a year to compile a single database of insurance histories, which will be available to all insurance companies. It will greatly reduce fraud in the insurance business.
AIG and IBM have completed their pilot project on insurance policies for Standard Chartered Bank. A blockchain is used in this project to simplify the distribution of information between the company’s head offices. These offices are located in Great Britain, USA, Kenya and Singapore, where different regulations for insurance are used.